Where will fuboTV stock be in 5 years?

On the surface the streaming-TV outfit fuboTV (FUBO -1.11%) looks like a winner. Conventional cable television is expensive, but streaming the same program over a broadband connection is a more affordable alternative.

Each of Fubo’s price plans also offers access to more sports channels than you’d typically get with traditional cable companies, such as Comcasthis (NASDAQ: CMCSA) Xfinity or Charterhis (NASDAQ: CHTR) Spectrum, tapping into one of the main reasons consumers continue to pay sky-high cable bills.

Despite its obvious trade and a few competitive advantages, this live streaming service also faces serious challenges. It’s possible — maybe even likely — that its stock will be no higher in five years than it is now.

What the hell is fuboTV anyway?

It looks like it can compete with cable in that it offers the same live network broadcasts, live sports, and other cable programming, but it’s different. Namely, in the same way that Disneyhis (NYSE: DIS) Hulu+Live and Alphabethis (NASDAQ: GOOG) (NASDAQ: GOOGL) YouTube TV does, Fubo digitally streams regular cable TV programming using that subscriber’s existing broadband connection.

It also offers access to video on demand, similar to Netflix (NASDAQ: NFLX) or The discovery of Warner Broshis (NASDAQ: WBD) Max (albeit on a smaller scale than either). In particular, although there are clear similarities, fuboTV is not regulated by the FCC (Federal Communications Commission) as a cable company, helping to keep costs down.

The sports-centric platform now serves more than 1.8 million subscribers, 1.45 million of whom pay an average of $85.69 per month for access to its streaming alternative to cable TV. (The other 400,000 customers in the “Rest of World” pay just $7.02 for much weaker plans, leaving the company’s basic service as the mainstay.)

Last quarter’s 24% year-over-year subscriber growth for its flagship service accounted for most of fuboTV’s top-line growth of 26%, extending established trends.

The loss also narrowed from just over $54 million in the second quarter last year to a loss of just under $29 million for the three-month period ending in June.

Based on this current trajectory, the company still anticipates profitability sometime next year. And, maybe will it’s out of the red and into the black by then.

There are, however, just a few risks here that investors are underestimating.

Four concerns too big to ignore

The first of these risks is slowing subscriber growth.

While last quarter’s 24% is impressive, it’s also well below fuboTV’s growth rate of a few years ago. In addition, it is likely to continue to slow down.

In its second-quarter report, the company indicated that subscriber growth for its cable TV alternative would likely slow to just 9% (year-over-year) for the current quarter, before slowing again to a rate of only about 7% during the last quarter of the year. Both would be the weakest subscriber growth rates seen since the launch of the company as we know it. Meanwhile, the number of customers in the company’s “Rest of World” is not expected to increase all until the end of this year.

Data source: Fubo Inc. Chart by author. The number of customers is in the thousands.

The prospect of being undercut is also high.

You may already know that Fubo recently won a legal battle against ESPN parent Walt Disney Fox (NASDAQ: FOX) (NASDAQ: FOXA)and Warner Bros. Discovery, preventing the trio from co-launching a sports-only live streaming service — called Venu — that was priced at just $43 a month. FuboTV feared the offer could poach up to 400,000 paying customers from its sports-focused service.

Now take a closer look at the details of the ruling. The ruling is being appealed, meaning Fubo could soon be competing head-to-head with the joint venture.

But even if Venu is successfully blocked, read between the lines. Something else that Venu remains a distinct possibility, even if each of these three studios and sports broadcasters are simply forced to launch their own sports streaming service. Any such platform poses at least some degree of threat to fuboTV, and the more there are, the greater the collective threat.

Potential investors will also want to know that while the company is paying down its debt, that effort comes at a high price for shareholders. Fubo also continues to issue new shares of its stock en masse to pay its bills, thereby diluting the holdings of existing shareholders. Even if and when the organization achieves profitability, there is no assurance that it will not continue to do so as a means of financing growth.

FUBO distributes outstanding YCharts data

Finally, while it is not currently considered a cable television name and therefore not regulated as one, never say never. The FCC entertains the prospect, acknowledging that when the current rules were created, digital video streaming did not exist. If that happens, fuboTV’s operating costs will almost certainly increase, forcing it to price its service on par with the pricing plans of conventional cable companies.

Too much uncertainty for most portfolios

It’s not all bad. As mentioned, fuboTV is heading towards profitability. Scale helps, as does more cost-effective spending. Higher margin ad revenue is growing particularly well, up 14% in the last quarter alone. It is possible that the company will end up and stay in the black.

The chances of Fubo actually thriving, however, still seem too low for most investors to take the risk.

See, this company still competes directly with players with much deeper pockets — names like Alphabet or Disney — who aren’t necessarily in a rush to see their live streaming platforms turn a profit. fuboTV does not have this luxury.

It also lacks their scale. Hulu+Live boasts 4.4 million paying customers, for perspective, while Alphabet says there are now about 8 million subscribers to its YouTube TV service. At the same time, Fubo’s incompeting directly with entrenched cable TV outfits like Charter’s Spectrum and Comcast’s Xfinity, both of which enjoy more marketing power and existing coverage.

The best possible five-year result here? In my opinion, perhaps an acquisition of fuboTV by a larger media or technology company that believes they can do more with the young sports streaming television brand. Unfortunately, even if this were to happen, there is no assurance that it would happen at a compelling price above this stock’s current price.

The bottom line? Investors should consider shopping for opportunities with lower risk and higher returns.