Despite the growth outlook, dilution risk continues to hang over fuboTV (NYSE: FUBO)

Band Stjepan Kalinic

This article first appeared on Simply Wall St News.

Although there were several bullish attempts until 2021,fuboTV Inc. (NYSE: FUBO) ended the year on a negative note.

Even though the media sector underperformed the overall market, FUBO fell by more than 40% – remaining far from profitability and under heavy pressure from short films.

See our latest review for fuboTV

Looking back on the year, here is the visual comparison of fuboTV against the media sector (Invesco Dynamic Media ETF)

NYSE: FUBO against the media industry in 2021; Source: Yahoo Finance

Despite the negative sentiment, there are opponents. For example, JPMorgan recently launched a hedge with an overweight rating and a price target of US $ 28. Analyst Anna Lizzul cited the company’s position to achieve double-digit growth in revenue per user.

The upgrade came shortly after FuboTV completed the acquisition of a streaming company Molotov SAS faster than expected. Molotov offers Fubo a strong presence in France, with 4 million users across the country.

Why Does Debt Bring Risk?

Debt helps a business until it struggles to pay it off, either with new capital or with free cash flow. In the worst case scenario, a business can go bankrupt if it does not pay its creditors. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. Of course, many companies use debt to finance their growth without negative consequences. When we think of a business’s use of debt, we first look at cash flow and debt together.

What is fuboTV’s debt?

As you can see below, at the end of September 2021, fuboTV had $ 317.1 million in debt, down from $ 41.5 million a year ago. Click on the image for more details. But it also has $ 393.1 million in cash to make up for that, which means it has $ 76.0 million in net cash.

debt-equity-historical-analysis NYSE: History of Debt to Equity of FUBO December 29, 2021

How strong is fuboTV’s balance sheet?

The latest balance sheet data shows that fuboTV had debts of $ 251.4 million due within one year and debts of $ 321.5 million due thereafter. In compensation for these obligations, he had cash of US $ 393.1 million as well as receivables valued at US $ 26.1 million maturing within 12 months. It therefore has a liability totaling US $ 153.7 million more than its combined cash and short-term receivables.

Of course, fuboTV has a market cap of US $ 2.44 billion, so these liabilities are likely manageable. Despite its notable liabilities, fuboTV has net cash, so it’s fair to say that it doesn’t have a lot of debt.

The balance sheet is the obvious starting point for analyzing debt levels. But ultimately, the company’s future profitability will decide whether fuboTV can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free Analyst Profit Forecast report interesting.

Year over 12 months, fuboTV reported revenue of US $ 512 million, representing a significant growth of 361%, although it reported no profit before interest and taxes.

So how risky is fuboTV?

Statistically, businesses that lose money are riskier than those that earn it. And the point is that over the past twelve months fuboTV has lost money in earnings before interest and taxes (EBIT). Indeed, during this period, he spent US $ 254 million in cash and recorded a loss of US $ 439 million.

If this trend continues, the business will likely need more cash. While not heavily leveraged, the risk of dilution poses considerable risk to new investors. According to our data, total shares outstanding have increased by 127.7% in the past 12 months. This is a big deal because dilution is the fastest way to erase shareholder value.

However, not all investment risks lie on the balance sheet – far from it. For example, fuboTV has 3 warning signs (and 1 which is significant) we think you should be aware of.

At the end of the day, it’s often best to focus on businesses with no net debt. You can access our special list of these companies (all with a history of profit growth). It’s free.

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Simply Wall St analyst Stjepan Kalinic and Simply Wall St do not have any position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Martin E. Berry