fuboTV (NYSE: FUBO) raised $183 million in an initial public offering last Thursday (Oct. 8). The upsized IPO (from an initial target of $150 million) valued the virtual multichannel video programming distributor (VMVPD) at $620.2 million. Post-public offering, the company’s market cap rose to $1.3 billion (based on 128.9 million shares). Co-Founder and CEO David Gandler said the “size and strength of the tailwinds within the streaming ecosystem” made it an optimal time for the “sports-first pay-TV replacement service” to ‘re-list’ on the New York Stock Exchange; particularly for a company growing 150-200 basis points every quarter. As noted in yesterday’s newsletter, with the markets rising, investors are looking for high-growth companies.
But Sonic CEO Dane Jasper says the jury is still out on fuboTV’s underlying business. “The company remains small (guidance suggests 370K-380K subs by Q3E) and content costs [are bound to] remain a struggle,” he said. As the company’s costs rise, so too will the service’s price (already at $60-$79/mo.). That’s problematic as “a lot of the drive to cut the cord is about eliminating the high monthly bill,” Jasper explained. The standalone internet executive reminds, “In a lot of ways [PlayStation Vue] was the first full-lineup, over-the-top, VMVPD solution—and it was [sold at] a high price. [The company] struggled with low viewership and eventually Sony discontinued the service.”
Our Take: To be clear, fuboTV has been publicly traded over-the-counter since the company’s reverse merger with FaceBank Group back in March. Their ‘re-listing’ is a significant development though, as it gives institutional investors a chance to buy into the company for the first time. Institutional investors tend to avoid stocks that are not traded on a major exchange.
Gandler credits FUBO’s “massive year-over-year growth” (subs rose +47%) to the company’s position at the intersection of three “mega-trends”: the secular decline of television, the shift of TV ad dollars to connected devices and online sports betting. “The pandemic has really accelerated the adoption of fast broadband and process of cord cutting,” Jasper said—a trend only expected to gather momentum in the coming years.
The ongoing shift in TV ad dollars has begun to make a difference in FUBO’s financials (2020 revenue guidance: $220-$232 million, +50% YoY). The company’s advertising business has become its fastest growing unit (now making up approximately 10% of total revenue, up from 4% in 2018). Gandler called fuboTV’s guidance around Q3 advertising revenue “really compelling.” At $6.50/month, the company now commands $80/year per user. The one-to-one nature of VMVPDs and FUBO’s attractive demo of sports fans have allowed the company to charge premium CPMs.
fuboTV now broadcasts 50,000 premium sporting events annually. Gandler said the amount of sports programming on the platform “makes us comfortable as it relates to sports betting— an area of increasing interest to the company.” The VMVPD currently sells advertising to some of sports betting’s biggest players. But Gandler says there are plans to refine the strategy in the coming months and “play sports betting as an adjacent market to [the company’s] video strategy.” He was not prepared to discuss potential integrations, though he did acknowledge, “In this day and age, everybody is thinking about [in-game betting]. I don’t know why we wouldn’t.” It is not hard to envision the sports-centric broadcaster aligning with a sports betting operator sooner than later.
fuboTV is using DirecTV’s playbook, circa 2005, and leading with sports programming in its attempt to become a premium linear replacement. Gandler noted that the AT&T subsidiary was successful in attracting some of the “most lucrative consumers” by getting them to “come for the sports and stay for the entertainment.” The problem is, fuboTV lacks the key differentiator DirecTV had—the exclusive broadcast rights to NFL Sunday Ticket. Jasper said he’s not convinced that “from a sports perspective, fuboTV [currently] has a lot going for it that YouTube TV doesn’t have” (beyond some soccer) and it’s hard to envision the company at its size gaining a property like Sunday Ticket.
fuboTV’s lack of scale won’t just be an issue in acquiring a differentiating property, it’s also likely to make it difficult for the company to “keep their content costs in control,” Jasper said. The company doesn’t have enough subs to meaningfully impact a given network’s revenue if they were to drop the channel, and FUBO needs the sports programming to appease their audience (86% of the fuboTV subs watch sports on a monthly basis), so dropping channels is not really a viable option either. With little leverage, the only choice will be to accept the price increases and either pass them along to the consumer or allow them to eat up profit margins (at least for the networks that carry football). For what it’s worth, fuboTV did recently drop 11 WarnerMedia stations. Of course, TBS and TNT do not carry NFL or college football games, which are FUBO’s primary driver of subs.
It should be noted that despite having a subscription base nearly 10 times fuboTV’s size (2 million plus subs), YouTube TV is also struggling to keep its content costs down. “YouTube TV went from being a really well-priced, disruptive underdog with a somewhat limited lineup at $35 to today’s comprehensive package priced at $65,” Jasper said. The fact that YouTube isn’t using its deep pockets to buy the market must be considered good news for fuboTV.