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 can see that fuboTV Inc. (NYSE:FUBO) does use debt in its business. But is this debt a concern to shareholders?
When Is Debt Dangerous?
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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is fuboTV’s Debt?
As you can see below, at the end of December 2021, fuboTV had US$325.1m of debt, up from US$28.8m a year ago. Click the image for more detail. However, it does have US$374.3m in cash offsetting this, leading to net cash of US$49.2m.
How Healthy Is fuboTV’s Balance Sheet?
Zooming in on the latest balance sheet data, we can see that fuboTV had liabilities of US$337.3m due within 12 months and liabilities of US$361.6m due beyond that. Offsetting these obligations, it had cash of US$374.3m as well as receivables valued at US$34.3m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$290.3m.
fuboTV has a market capitalization of US$1.22b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, fuboTV also has more cash than debt, so we’re pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine fuboTV’s ability to maintain a healthy balance sheet going forward.
Over 12 months, fuboTV reported revenue of US$638m, which is a gain of 193%, although it did not report any earnings before interest and tax. So there’s no doubt that shareholders are cheering for growth
So How Risky Is fuboTV?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months fuboTV lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$206m and booked a US$383m accounting loss. Given it only has net cash of US$49.2m, 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. High growth pre-profit companies may well be risky, but they can also offer great rewards.