In Q2 this year, Fubo TV delivered strong growth numbers in subscribers (91,000 net additions, +138% YoY), total revenue ($130.9 million, +196% YoY) and engagement (245 million hours, +148% YoY). The company, however, also reported a loss of $94.9 million dollars (+30% YoY) during the same quarter. Still, investors, encouraged by the record sub, revenue and engagement figures, were willing to look past the mounting losses. $FUBO shares rose more than 11% on the Aug. 10 earnings report (the company has since given back those gains and more after entering into a $500 million at-the-market stock sales agreement).
Our Take: Fubo co-founder and CEO David Gandler was not surprised to see the market react favorably to the quarterly results. “Investors buy future,” he said. “They don’t buy past or present results.”
In this case, Fubo shareholders are buying the company’s sports betting vision. On the earnings call, Gandler showcased some of the company’s integrated sports betting tech and reaffirmed plans to launch Fubo Sportsbook in Q4.
Count consumer internet analyst Jed Kelly of Oppenheimer & Co. among those who can envision Fubo with a meaningful sports betting business. In a recent note to investors, he wrote, “If Fubo develops a competent [online sports betting] product, its ability to offer tier-one sports content to bettors will be a differentiator.” It should be noted that Oppenheimer entered into a sales agreement with Fubo to sell the $500 million of shares and will get an allocation to sell themselves as part of the deal.
But Fubo isn’t the only company intent on integrating sports betting functionality into broadcasts (see: DraftKings, Barstool). And media consultant Patrick Crakes (founder, Crakes Media) says the challenge for the upstart vMVPD “is to compete against much larger distributors, leagues and streaming platforms.” Remember, Fubo’s market cap is less than $4 billion.
Gandler insists his company maintains a first-mover advantage that will result in a moat forming around the business over the next 12-18 months. For a competitor to provide a comparable offering, they would “need [to construct] a comprehensive platform,” he said. “And in my opinion, that train has left the station. They can do one-offs and things. But they are never going to build a platform that will provide 50,000-plus sporting events,” he added.
Crakes agrees that “being first is good,” but he warns, “[Fubo] just needs to be prepared to sustain the shock of a strategic distributor entering the marketplace and levering its scale and pricing power against their smaller sub base.”
Broadcast rights aside, Gandler believes Fubo is also constructing “an integrated experience that will build defensibility into our business,” he said. “Differentiation. [Competitors] are not going to be able to do that on the technology side. It is extremely difficult to replicate what has taken us two to three years to build.”
Fubo demonstrated some of the tech it is building during last week’s earnings call (see: sportsbook and video feed in sync). The data integration and unified customer experience shown will eliminate several steps in the process of placing a wager, but while Crakes thinks Fubo has advanced the experience, he also suggests the tech needs to be integrated into the primary feed (as opposed to a second screen) for the company “to fully penetrate the general market and scale.” That means user interface evolution—and likely some advancements in latency tech—would need to take place before sports betting really provides the company with meaningful topline growth.
Gandler did not deny integration in the primary feed is the ultimate goal, but he explained the current focus is on back-end tech infrastructure and getting through the regulatory process in several states (they plan to roll out their sportsbook in three states later this year).
Fubo cited the addition of exclusive streaming rights for CONMEBOL matches as one of the catalysts for the increased engagement figures (beta testing of predictive free-to-play games were also mentioned in the latest investor letter). And Gandler said the company’s immersive experience “has demonstrated” it is capable of increasing engagement for a sports league, reporting a 30% increase in engagement with users of the free-to-play games. So, one can understand why the company has further exclusive rights ambitions and why it believes there will be interest on the league side. But don’t expect Fubo to pursue NFL rights (i.e. Sunday Ticket). “We are measured in discipline,” the CEO said.
Sports broadcast rights are costly—even if the company takes a measured approach. An equity-driven capital raise is likely on the horizon. “This is a subscriber model, and the thing about subscriber models is that you have to invest heavily with upfront costs to be able to bear the fruits of the LTV,” Gandler said.
Given the challenges of the vMVPD model (little pricing power, low levels of customer commitment) skeptics wonder how long it will be before Fubo turns profitable, with actual free cash (sub adds are not currently EBITDA accretive). Gandler didn’t offer a timeline, but he said it takes time to “build a category-defining business.”
Speaking of category-defining businesses, Gandler mentioned Amazon when talking about Fubo’s long-term ambitions. “If we can figure out betting, commerce is probably the next area that we’ll focus on,” he said. “As we add interactivity, you’ll start to see us play that Amazon ecosystem game, and we’ll look for other ways to monetize our strong base that has disposable income.”
The sports betting market is evolving quickly. So, Gandler was hesitant to predict the number of subscribers that Fubo’s broadcast integrations would ultimately draw or the percentage of subscribers that would eventually convert into sports bettors. But for perspective, a recent company survey indicated 20-22% of subscribers would place bets on the platform (the company is tracking to hit 915,000 subscribers by year end). And Fubo hopes to gain licenses in enough states by the end of 2023 to give 50% of its subscriber base the opportunity to take advantage of the broadcast integrations.
Interestingly, the company is not pursuing a license in New York (their top DMA). Gandler said there are plenty of states for the company to tackle in the interim, saying he’d like to wait to see how the sports betting ecosystem evolves. “You’re seeing M&A activity now, so licenses are opening up, and we think we’ll probably see better deals with the second wave of companies,” he said. “Time is on our side.” The belief is as long as Fubo continues to grow its sub base, it will be able to capture market share in New York upon entry.
