Apr 23, 2021
[12 min Read]
FuboTV is a live TV streaming company focused primarily on sports which offers subscribers access to thousands of live sporting events, news, and entertainment content. The FuboTV platform allows users to have access to their content through streaming devices such as SmartTV's, mobile phones, computers, and tablets. This company gives the option to purchase additional features/packages that include more DVR cloud storage, number of simultaneous streams, international sports, adventure channels, etc. The base package provides a mixture of channels which includes the top 50 Nielson-ranked networks that span across sports, news, and entertainment. In the summer of 2020, they enhanced their sports offerings with the addition of ESPN and ABC as well as programming from Disney. In addition, FuboTV supports 4K streaming, although much of its content is streamed at 720p and 60 frames-per-second video quality. Since live TV requires a sophisticated technology infrastructure, Fubo utilizes industry standard digital Rights Management Technology and geographical rights requirements which enables them to meet blackouts if they were to occur. With all that content, FuboTV is one of the most expensive live tv packages that you can buy. Their competitors include the likes of YouTube TV ($64.99), Sling TV ($35.00), Hulu Live TV ($65), and more. Fubo's growth strategy is focused on acquiring new subscribers who are attracted to the sports and entertainment offerings that they provide. They monetize their subscriber base through subscription fees and digital advertising and in 2020 the majority of their revenue came from monthly subscriptions. Furthermore, in January of 2021 Fubo announced that they plan on acquiring sports betting and interactive gaming company Vigtory (see recent acquisition section) and they expect to launch a sportsbook before the end of the year.
Live TV streaming is changing the way people watch their favorite sports, shows, and other entertainment content. As a result, more people are deciding to stop paying for traditional TV. Due to this disruption, billions of dollars in subscription and advertising revenue has shifted to streaming platforms. The global video streaming market size was valued at $50.11 billion in 2020 and is expected to grow at a compounded annual growth rate of roughly 21% from 2021 to 2028. In addition to the streaming market which Fubo currently operates in, their commitment to providing sports betting has expanded their total addressable market. The global sports betting industry reached a market size of $203 billion in 2020 and is expected to grow by $144.4 billion from 2020-2024 (11% CAGR). What hinders the growth of this industry is the fact that sports betting is still illegal in many parts of the world. Sports betting is currently legal in a number of states in the US and in countries such as the UK, Denmark, Italy, China, and a few others. While sports betting is legal in a number of countries, often times people have limited access. For example, in Costa Rica you can only bet online and in India only a few states allow sports betting.
If we add together the total addressable markets for live TV streaming and sports betting in the year of 2020 we get $253.11 billion. Compare that number to Fubo's revenue of $268.8 million in 2020 and we see that Fubo has a huge opportunity ahead of itself. As Fubo scales their new sports betting business and more countries and states make sports betting legal, we should see Fubo ramping up revenue growth significantly. Of course their is a risk to all this as it is very costly to scale both businesses that Fubo operates. Thus, their financial results will give us an idea of how they've been growing and if they can maintain the level of growth they've seen in the past.
Note - main points are bolded
CEO - David Gandler
David was appointed as the CEO and director of Fubo in April 2020. He has been part of the team since 2015 when Fubo was simply a streaming soccer service. Prior to his role at Fubo, Gandler worked in the advertising industry for over 15 years at companies such as Scripps Networks Interactive, Time Warner Cable Media Sales, and NBCUniversal's Telemundo Media. David has won a number of awards which includes Goldman Sachs' 100 Most Intriguing Entrepreneurs (2019), Variety's Dealmakers (2020,2019), and Broadcasting & Cable's Power 100 (2017). David's vision for what Fubo could become is interesting and the first of its kind. Looking forward I hope to see Gandler scale this company and integrate their acquisitions successfully. Undoubtedly, David has a grand vision for what could become one of the largest sports betting and streaming companies.
Co-Founder/CMO - Alberto Horihuela
Alberto is the co-founder and chief marketing officer at FuboTV and is in charge of their branding, user engagement and retention, and overall marketing vision. Prior to his co-founding of FuboTV, Alberto was head of Latin America at DramaFever (a video streaming provider). Alberto has an entrepreneurial spirit as he also co-founded Primerad Network, a digital video advertising company that connected brand marketers to Latin American audiences. In addition to his experience in marketing and entrepreneurship, Horihuela worked as an economist and analyst at Morgan Stanley and DeMatteo Monness. Both Gandler and Horihuela have extensive experience in marketing, entrepreneurship, and media to which should serve this company well going forward.
Management not mentioned: Simone Nardi (CFO), Mike Berkley (CPO), and Gina Sheldon (general counsel).
Fubo can't keep up with the competition - As previously stated, Fubo is up against some heavy competition. AT&T TV provides more channels at the highest subscription level, but Fubo still offers more sports. Also , FuboTV's DVR only lets you record 250 hours of content while AT&T TV lets you record 500 hours of content. YouTube TV and Sling TV are two other competitors that are well equipped to steal market share from Fubo. The main differences I see between Fubo and the rest of the pact have to do with cost and product focus. Sling provides the cheapest plan which starts at $35 and is compatible with many of the existing streaming devices such as Apple TV, Xbox One, etc. In terms of the rest of the cohort, they all provide plans that are priced similarly. In terms of the products they offer, Sling, YouTube TV, and AT&T TV haven't differentiated themselves like Fubo. When it comes down to it, sports fans should gravitate to FuboTV as they provide the largest sports network. We'll have to see how this all plays out in the coming years to get to know which companies emerge as the leaders.
Fubo fails to turn a profit - While this risk factor applies to any company that isn't profitable, it's important to highlight how early this company is to having a profitable business model. In their last earnings for the twelve months ended December 31st, Fubo posted $184 million of subscription revenue and $204 million in subscriber related expenses. Thus, this company is not making money on their services and I can't quite predict when or if this company will be profitable any time soon. That's not to say Fubo is a terrible service, but rather their financial standing isn't one that currently strikes me as sustainable.
Contribution margin increasing - As noted in the fourth quarter and fiscal 2020 financial results, this company's contribution margin for 2020 was 10.1%. The contribution margin is the difference between subscriber revenue and what it costs Fubo to provide subscribers their service (ARPU - ACPU). While the contribution margin for this company sounds reasonable, the problem comes in when you factor expenses. Expenses such as sales and marketing, depreciation, technology and development, and a few others are hindering this company substantially from making a profit. Once you factor all the expenses of Fubo, they came in at an operating loss of $479 million. What we need to see from Fubo these next five years as they scale is them being able to at-least report a positive income from operations. Let's also remember that Fubo has a recurring revenue business model which means it is predictable and reliable.
Fubo scales their sports gambling business - While this point is rather obvious, I wanted to note a few things about this side of Fubo's business so we can better understand it. Fubo has yet to roll out their sports betting business but they, "expect to launch a sportsbook before the end of the year." Certainly this is an exciting direction that this company is headed in. Although, we have no sort of guidance as to how this sports betting business will perform. CEO David Gandler was quoted saying, “We not only expect sports wagering to become a new line of business and source of revenue, but we also expect that it will increase user engagement on fuboTV resulting in higher ad monetization, better subscriber retention and reduced subscriber acquisition costs.” I like the way that David is thinking, but simply liking the idea doesn't make it a success. I can imagine investors will be eagerly watching how this venture performs in the first year of its integration. As for now, we don't really know what to expect.
Fubo's vision to be a digital entertainment giant primarily focused on sports is innovative and unheard of. Their recent acquisitions of Vigtory and Balto Sports shows their commitment to making their goal a reality. While the CEO is thinking big, his ideas aren't translating well onto Fubo's financial statements. Their expenses have gone up at the same rate as their revenue has and that worries me. Additionally, this company isn't in the best cash position with $134 million. It's important to note that this company is still early in the process of what they're trying to accomplish and I'll be keeping a close eye on how they perform this next year. Their recurring revenue business model will surely serve them well in the future as it is predictable and reliable. You'll notice that the discounted cash flow is missing from this post and that is because forecasting this company's future growth is extremely difficult without some sort of idea as to what we can expect. As of right now, to put a price on this company is quite difficult. In conclusion, I'll be watching Fubo's earnings this next year to get an idea of where this company is headed and if it's worth starting a position.