It's funny how the stock market works sometimes.
I've been planning this article for weeks, starting with a headline idea in late December. fuboTV (FUBO -0.37%) stock fell 60% in 2024, making it look like a potential turnaround story.
Just a few days later, Walt Disney (DIS 0.82%) decided to buy the company. fuboTV's stock soared on the news and I was going to drop this story idea. A buyout usually spells the end of the target company's future on the stock market, after all. There couldn't be any room for game-changing stock returns after the immediate price surge.
But this deal is different, so I'm back to the original idea again. Disney's deal will keep fuboTV available as a separately traded stock, but with firm financial backing from the House of Mouse. Is the company set up for a whole new level of long-term success in this structure?
Details of the Disney deal
The Disney merger is a pretty simple affair with game-changing consequences.
About a year ago, fuboTV launched a lawsuit against Disney, Warner Bros. Discovery (WBD 0.53%), and Fox Corp. (FOXA 0.22%), where it accused the three media giants of anticompetitive business practices. As part of the buyout, fuboTV has dropped those claims. The three media giants canceled their proposed Venu sports-streaming service later that week, as a couple of media companies not named fuboTV threatened to file another lawsuit.
fuboTV will receive a cash payment of $220 million, pooled by Disney, Discovery, and Fox. Furthermore, Disney will provide a $145 million term loan to fuboTV next year. The company isn't profitable these days, so the additional financing will help it keep the lights on until the merger is completed.
What difference does the merger make?
The Venu-related compensation more than doubles fuboTV's cash reserves, which stood at $146 million in the third quarter of 2024. Disney expects a revitalized fuboTV to generate positive cash flows from the get-go.
After merging with the Hulu+ streaming service with live TV features, fuboTV will have about 6.2 million subscribers. That'll be the second-largest digital streaming option for live TV consumers in North America, behind Alphabet (GOOG 2.51%) (GOOGL 2.54%) subsidiary YouTube TV's more than 8 million customers.
Classical cable companies aren't too far ahead, either. Sector leader Comcast (CMCSA -9.54%) had 12.8 million video customers in the third quarter, down from 16.6 million two years earlier.
I expect a Disney-backed version of fuboTV to ramp up its advertising efforts and other subscriber-seeking activities. The sudden access to really deep financial pockets could help it catch up to YouTube TV, Comcast, and other live TV services in just a couple of years. Don't forget that fuboTV is growing its subscriber rolls by about 10% a year without Disney's help. I can't wait to see how it might perform with a richer marketing budget.
Can fuboTV build your wealth from here?
Will that help the stock deliver market-beating returns? Well, let's see. fuboTV's total market value was about $480 million before the Disney buyout proposal. Today, it's closer to $1.4 billion. This significant increase may reduce the potential long-term returns for new investors who are buying at the higher price point.
At the same time, fuboTV's stock only looks expensive if you focus on its negative profits. For growth investors who don't mind taking a chance on a fast-growing company, it's actually rather affordable at 0.9 times trailing sales. That's below the slow-moving Comcast at 1.2 or the more vibrant Disney's 2.3. From this perspective, fuboTV looks poised for strong stock-market gains.
Oh, and Disney will own 70% of the stock if and when the merger is completed. The media conglomerate will have robust financial incentive for helping fuboTV succeed.
Finally, even a mediocre stock performance could set you up for life. Simply matching the returns of the S&P 500 index, for example, should double your money in about 7 years. The returns will really add up if you hold on to that investment for a few decades. And I'll be surprised if fuboTV can't at least keep up with the broader market for the foreseeable future.
Yes, I think fuboTV can set you up for life, as part of a diversified investment strategy. So could Disney, by the way, especially with fuboTV helping Hulu's premium subscription service restart its stalled subscriber growth.
