Stop buying FuboTV's stock. It's too early in the legal process to bet on a win.

By Tomi Kilgore

Seaport Research cuts rating of sports streaming service to neutral, as potential legal appeals and stock offerings could weigh

Shares of FuboTV Inc. surged again Monday but backed way off the day's best levels after Seaport Research cautioned investors, saying it's too early in the legal process involving Venu Sports to bet on a big win for FuboTV.

Seaport analyst David Joyce also said that since Venu Sports - a competing sports streaming service from Walt Disney Co. (DIS), Warner Bros. Discovery Inc. (WBD) and Fox Corp. (FOXA) - was blocked from launching by a judge on Friday, the big rally in FuboTV's stock (FUBO) could tempt the company to launch another equity offering to raise money to pay down debt.

While a stock offering would help reduce interest expenses and improve the company's balance sheet, Joyce said it would come at the cost of some shareholder dilution.

Joyce downgraded the stock to neutral after being at buy for the past five months.

The stock had shot up 16.8% on Friday and was up as much as 42.5% in early Monday trading before pulling back to be up 16% in afternoon trading. Still, the stock was up 35.9% in two days following news of the Venu Sports ruling in U.S. District Court for the Southern District of New York.

That's what worries Joyce, especially because Venu Sports can appeal the ruling.

"With no change in estimates at this point, and with company guidance indicating their subscriber projections do not reflect the potential impact of Venu operating in the market, we think shares are largely driven by the legal process at this point, including potential appeals," Joyce wrote in a note to clients.

He said FuboTV claims that its content costs are 30% to 50% higher than those of its peers, since FuboTv has to buy about half of its programming from the Venu Sports companies. An optimistic case for FuboTV would be that a court ruling to lower content costs would make the company more competitive, which would accelerate its path to profitability.

He currently projects free cash flow and earnings before interest, taxes, depreciation and amortization to turn positive in 2025.

"Depending on that cost-related claim outcome, our estimates could improve - but it is too early in the legal process to make the bet," Joyce wrote.

FuboTV's stock has tumbled 44.2% year to date, while the S&P 500 SPX has gained 17.2%.

-Tomi Kilgore

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08-19-24 1449ET

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