David Iben put it well when he said, ‘Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.’ So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that fuboTV Inc. (NYSE:FUBO) does use debt in its business. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company’s debt levels is to consider its cash and debt together.
What Is fuboTV’s Net Debt?
The image below, which you can click on for greater detail, shows that at March 2021 fuboTV had debt of US$326.8m, up from US$62.8m in one year. However, it does have US$459.5m in cash offsetting this, leading to net cash of US$132.7m.
A Look At fuboTV’s Liabilities
The latest balance sheet data shows that fuboTV had liabilities of US$204.8m due within a year, and liabilities of US$312.8m falling due after that. Offsetting this, it had US$459.5m in cash and US$18.0m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$40.0m.
This state of affairs indicates that fuboTV’s balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it’s hard to imagine that the US$3.33b company is struggling for cash, we still think it’s worth monitoring its balance sheet. Despite its noteworthy liabilities, fuboTV boasts net cash, so it’s fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if fuboTV can strengthen its balance sheet over time.
In the last year fuboTV wasn’t profitable at an EBIT level, but managed to grow its revenue by 2,755%, to US$330m. When it comes to revenue growth, that’s like nailing the game winning 3-pointer!
So How Risky Is fuboTV?
Statistically speaking companies that lose money are riskier than those that make money. And we do note that fuboTV had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$196m of cash and made a loss of US$585m. Given it only has net cash of US$132.7m, the company may need to raise more capital if it doesn’t reach break-even soon. Importantly, fuboTV’s revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. There’s no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet – far from it.