Warren Buffett famously said, ‘Volatility is far from synonymous with risk.’ 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 note that fuboTV Inc. (NYSE:FUBO) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. When we think about a company’s use of debt, we first look at cash and debt together.
What Is fuboTV’s Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2021 fuboTV had US$317.1m of debt, an increase on US$41.5m, over one year. However, it does have US$393.1m in cash offsetting this, leading to net cash of US$76.0m.
A Look At fuboTV’s Liabilities
According to the last reported balance sheet, fuboTV had liabilities of US$251.4m due within 12 months, and liabilities of US$321.5m due beyond 12 months. Offsetting this, it had US$393.1m in cash and US$26.1m in receivables that were due within 12 months. So its liabilities total US$153.7m more than the combination of its cash and short-term receivables.
Given fuboTV has a market capitalization of US$2.49b, it’s hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. 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 361%, to US$512m. When it comes to revenue growth, that’s like nailing the game winning 3-pointer!
So How Risky Is fuboTV?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that fuboTV had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$254m and booked a US$439m accounting loss. With only US$76.0m on the balance sheet, it would appear that its going to need to raise capital again soon. The good news for shareholders is that fuboTV has dazzling revenue growth, so there’s a very good chance it can boost its free cash flow in the years to come.
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