Where will fuboTV stock be in 5 years?

Superficially, streaming TV equipment fuboTV (FUBO -1.11%) looks like a winner. Traditional cable TV is expensive, but streaming the same programs over a broadband connection is a cheaper alternative.

Each of Fubo’s pricing plans also offers access to more sports channels than you would normally get from traditional cable companies, such as Comcast'S (NASDAQ:CMCS) Xfinity or Charter'S (NASDAQ: CHTR) Spectrum addresses one of the main reasons why consumers continue to pay horrendous cable bills.

However, despite its obvious market viability and some competitive advantages, this live streaming service also faces serious challenges. It's possible – perhaps even likely – that its stock won't be any higher in five years than it is now.

What the heck is fuboTV anyway?

While it may seem to compete with cable television, offering the same live network broadcasts, live sports and other cable programming, it is significantly different. In the same way that Disney'S (NYSE:DIS) Hulu+Live and alphabet'S (NASDAQ:GOOG) (NASDAQ:GOOGL) Unlike YouTube TV, Fubo delivers standard cable TV programs digitally over the subscriber’s existing broadband connection.

It also offers access to on-demand videos, similar to Netflix (NASDAQ:NFLX) or Warner Bros. Discovery'S (NASDAQ: WBD) Max (albeit on a smaller scale than both). While there are clear similarities, fuboTV not is regulated by the FCC (Federal Communications Commission) as a cable company, which helps keep costs down.

The sports-centric platform now serves over 1.8 million subscribers, 1.45 million of whom pay an average of $85.69 per month for access to this streaming alternative to cable TV. (The other 400,000 customers in the “rest of the world” pay just $7.02 for much leaner plans, making the company's core service the dominant breadwinner.)

A 24% year-over-year increase in subscribers for its flagship service last quarter was primarily responsible for fuboTV's 26% increase in revenue, continuing established trends.

The loss also narrowed, from just over $54 million in the second quarter of last year to just under $29 million for the three-month period ending June.

Based on this current development, the company still expects to be profitable sometime next year. And perhaps will to have found its way from the red into the black by then.

However, there are simply some risks here that are underestimated by investors.

Four worries that are too big to ignore

The first of these risks is a slowdown in subscriber growth.

While the 24% growth last quarter is impressive, it is also well below fuboTV's growth pace of a few years ago, and the pace is likely to continue to slow.

In its second-quarter report, the company said subscriber growth for its cable TV alternative would likely slow to just 9% (year-over-year) in the current quarter before leveling off to a pace of just about 7% in the final quarter of the year. Both would be the worst subscriber growth rates since the company was founded. Meanwhile, the company's customer base in the “rest of the world” is not expected to grow. all until the end of this year.

Data source: Fubo Inc. Chart by author. Customer numbers in thousands.

The risk of being undercut is also high.

You may already know that Fubo recently won a lawsuit against ESPN parent company Walt Disney. fox (NASDAQ:FOX) (NASDAQ:FOX)and Warner Bros. Discovery, preventing the trio from jointly launching a pure sports livestreaming service called Venu that cost just $43 per month. FuboTV feared the offer could lure as many as 400,000 paying customers away from its sports-focused service.

Now let's take a closer look at the details of the ruling. The injunction is being appealed, which means Fubo could still be competing directly with the joint venture in the near future.

But even if Venu is successfully blocked, read between the lines. Something else How Venu remains a real possibility even if each of these three studios and sports broadcast companies were simply forced to launch their own standalone sports streaming service. Any such platform poses at least some threat to fuboTV, and the more of them there are, the greater the collective threat.

Potential investors will also want to know that while the company is reducing its debt, it is doing so at a high cost to shareholders. Fubo also continues to issue new shares on a massive scale to pay its bills, diluting the shares of existing shareholders. Even if the company does become profitable, there is no guarantee that it will not continue to do so to fund growth.

FUBO shares excellent data from YCharts

Finally, while fuboTV is not currently considered a cable TV provider and therefore is not regulated as such, never say never. The FCC is considering this possibility because it recognizes that digital video streaming did not exist when the current rules were written. If this happens, fuboTV's operating costs will almost certainly increase and the company will be forced to offer its service at the same price level as traditional cable companies' plans.

Too much uncertainty for most portfolios

It's not all bad. As mentioned, fuboTV is moving toward profitability. Its size helps, as does more cost-efficient spending. Advertising revenue is growing particularly well with higher margins, up 14% in the last quarter alone. It's conceivable that the company will be in the black and stay there.

However, the chances that Fubo will ever truly flourish still seem too small for most investors to take the risk.

Keep in mind that this company is still in direct competition with players that have much deeper pockets – names like Alphabet or Disney – and who aren't necessarily in a rush to turn a profit from their live streaming platforms. fuboTV can't afford that luxury.

Nor does it have their scale. Hulu+Live has 4.4 million paying customers, while Alphabet says there are currently about 8 million subscribers to its YouTube TV service. At the same time, Fubos InThey face direct competition from established cable TV providers such as Charter's Spectrum and Comcast's Xfinity, both of which have more marketing power and reach.

The best possible outcome in five years? In my opinion, perhaps an acquisition of fuboTV by a larger media or technology company that believes it can do more with the young, sports-focused streaming TV brand. But even if that were to happen, unfortunately there is no guarantee that it would happen at an attractive price above the current price of this stock.

Conclusion: Investors should look for investment opportunities with lower risk and higher profit potential.