FuboTV (NYSE:FUBO) is likely on track to produce positive free cash flow (FCF) or come very close to it next year, given the streaming company’s huge subscriber growth. This should become clear to investors and analysts alike when the company produces its Q2 2021 results on Aug. 10. I project that FUBO stock will spike at least 33% to $35.59 per share from its July 23 price of $26.72.
This is based on the company’s continued growth in subscribers and the gains in its operating profits each quarter.
To estimate this, I first take the quarterly subscriber growth and annualize it. Then I multiply this by its monthly estimated average revenue per user (ARPU). After adding a small amount from advertising, this will give us the estimate for annual revenue. Lastly, we estimate its FCF margin and also use an FCF yield to value FUBO stock.
Estimating FuboTV’s Future Free Cash Flow
Last quarter, FuboTV’s total subscriber growth was 7.766% when total subscribers grew from 547,880 to 590,430. Based on this rate of quarterly growth, one could expect a 34.87% annualized growth rate. So on a run-rate basis, the company will have 796,300 subscribers. For simplicity’s sake, let’s call it 800,000.
Next, as the company had $69.09 in ARPU per month in Q1 2021, let’s assume it hits $70 in the next year. That gives the company $56 million in monthly revenue. Annually, that works out to $672 million in revenue. Adding $7.11 in monthly ARPU advertising revenue (the same as in Q1) brings in an additional $68 million in sales, or $740 million.
That should be enough to make the company free cash flow positive, especially if we project out to the next year. For example, let’s assume that total revenue growth is about 35% from $740 million to $999 million, or $1 billion for simplicity’s sake. That is where the company will be on a run-rate basis about one year from now.
What FUBO Stock Is Worth
Now, assuming a 10% FCF margin, this brings FuboTV’s FCF to $100 million. Assuming a 2% FCF yield, that puts its market value at $5 billion.
This $5 billion market value projection works out to a one-third gain over today’s market value of $3.753 billion as listed by Yahoo! Finance. That site tends to have the most accurate market cap calculation. In other words, FUBO stock is worth $35.59 (i.e., 1.332 times $26.72 per share) as of July 23.
This is also close to — and slightly higher than — my last analysis of FUBO stock. In my article on June 8, I estimated that it was worth $33.35.
Surprisingly, my price target is actually lower than many other analysts. On TipRanks.com, seven analysts expect an average price of $38.86 per share, or 45.43% over the price on July 23. Seeking Alpha indicates that eight analysts have an average price target of $39.50, or 47.8% higher.
For me, this has to be the first time analysts on the sell-side have a higher price target on a stock that I like. It shows the ebullience Wall Street has for the prospects of this live TV streaming company.
What to Do With FUBO Stock
Given my projections and the fact that Wall Street is so bullish on FUBO stock, I suspect most investors will have a good chance of making money here.
However, keep one thing in mind: This company is still not profitable. Only my projections for subscriber growth lead me to believe revenue growth can make FuboTV FCF-positive in the next year or two.
Nevertheless, the probability is high that FUBO stock will rise at least one-third to $35.59, based on its projected FCF growth over that period.
On the date of publication, Mark R. Hake did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.