FuboTV has recently achieved a significant milestone that is poised to transform its future and possibly influence the competitive dynamics of the streaming industry. This development involves a collaboration with the renowned media company Disney. Here are three reasons some investors might consider purchasing FuboTV stock, along with key issues to watch for those who invest.
1. FuboTV is enhancing its business
A major deal has been established where Disney will integrate its Hulu service with FuboTV’s business operations. FuboTV will continue to run its own streaming service and additionally manage Hulu. This collaboration represents a significant opportunity for FuboTV, which concluded 2024 with 1.676 million subscribers. Incorporating Hulu is anticipated to elevate the subscriber count to 6.2 million almost immediately.
This move positions FuboTV alongside leading names in the streaming sector, such as Disney. However, this arrangement also benefits Disney by removing potential distractions and complications in its media business involving various content partners at Hulu. While FuboTV is aiding Disney by taking over Hulu, the primary lure is the increased scale.
2. Scale is crucial in the streaming industry
The advantages of expansion for FuboTV are numerous. The company incurs costs for content, which can be more evenly distributed with a larger subscriber base. This growth could help advance FuboTV toward consistent profitability, which it has yet to achieve.
In the advertising realm, a larger audience attracts advertisers aiming to reach more viewers. With Hulu, FuboTV can present a significantly larger audience to advertisers, potentially increasing advertising revenue. Moreover, growth in paying subscribers will contribute to higher subscription revenues for the company’s income statement.
However, retaining Hulu’s inherited subscribers remains a challenge due to the competitive streaming market. Should FuboTV experience subscriber loss post-acquisition, initial business gains might gradually diminish.
3. Substantial cash and robust backing
Key aspects of the Disney agreement include a $220 million cash infusion into FuboTV’s balance sheet from Disney, Fox, and Warner Bros. Discovery. With FuboTV ending 2024 with approximately $160 million in cash, down from $245 million at the end of 2023, this financial boost will be advantageous. This additional capital will assist FuboTV during the transition phase and support content purchasing to retain Hulu’s clientele.
Furthermore, Disney will provide FuboTV with a $145 million loan and will hold 70% of FuboTV’s shares. This majority ownership positions FuboTV under the financial support of Disney, which optimists perceive as a substantial advantage.
A potential concern is that with Disney holding a 70% stake, FuboTV might operate under the control of the media giant, potentially necessitating compliance with Disney’s directives regardless of their impact on FuboTV’s interests. While this is a cautionary perspective, it is a scenario investors should consider as they track FuboTV’s development.
The prospect for FuboTV appears promising. The merger with Hulu signals a significant positive shift for FuboTV, marked by substantial subscriber growth, operational benefits, and the support of Disney. Investors should be cautious not to overlook potential downsides, should they arise.
Reuben Gregg Brewer has no positions in any of the mentioned stocks. The Motley Fool has positions in and recommends Walt Disney, Warner Bros. Discovery, and FuboTV. The Motley Fool adheres to a disclosure policy.
