FuboTV: Winner Or Loser? Strong Q4 Projections May Not Get Analysts On The Same Page

Even in the still-emerging, constantly shifting streaming business, FuboTV continues to inspire unusually divergent reviews from analysts.

In many respects, the “sports-first” live TV streaming platform looks good on paper.

In fact, the company just this morning released preliminary Q4 2020 results that anticipate 545,000 year-end subscribers — up 72% year-over-year, and notably higher than its 510,000 projection going into the quarter.

The company also expects revenue to reach between $94 million and $98 million — a YoY gain of 77% to 88%, and again up considerably from its previous estimate of $80 million to $85 million.

That’s on top of Q3 results showing a 58% YoY increase in subscribers to 455,000; a 14% YoY increase in average revenue per user; 71% growth in adjusted revenue to $61.2 million; and impressive 153% growth in ad revenue to $7.5 million.

In addition, the company logged an 83% YoY increase in total content hours streamed, to 133.3 million, and a 20% YoY increase in average monthly hours streamed by monthly active users, to 121.

After its IPO in October, the virtual multichannel programming distributor (vMVPD) raised $183 million at $10 per share.

After a strong first earnings statement in November, its shares “absolutely skyrocketed… with Needham's Laura Martin raising her target to a street-high $60 on December 22,” TMFStoneOak’s Billy Duberstein noted in Motley Fool on December 29.

Among Needham’s rationales for bullishness: FuboTV’s stated intention to enter the sports betting market and its December acquisition of fantasy sports software firm Balto Sports; its having doubled its streaming market share over two years, to 5%; its partnership with Hisense in January 2020 to become its preferred sports partner for its VIDAA TVs; and its trading at a 62% discount versus OTT streaming peers, with potential to close that valuation gap through 150% growth in CTV advertising in 2021.

Other analysts, including Roth Capital, have expressed similarly positive outlooks for the company.

But also in late December, BMO Capital Markets downgraded FuboTV’s stock from outperform to market perform. And significantly, LightShed Partners analyst Richard Greenfield issued a bombshell sell rating with an $8 target for the stock.

On December 23, Greenfield declared that FuboTV "may be the most compelling short we have ever identified in our career as analysts."

In subsequent notes, he has asserted that FuboTV isn’t sufficiently differentiated from its much-larger competitors Hulu + Live TV and YouTube TV. Those two — with about 4.1 million and 3 million subscriptions, respectively — currently account for 10% of vMVPDs’ total 15% share of U.S. pay-TV subscriptions.

Although it bills itself as a “sports-first” live streamer, mounting licensing fees have forced FuboTV, like other vMVPDs, to drop regional sports. FuboTV no longer carries the Turner networks that broadcast the NBA, including March Madness, as well as the MLB playoffs. As Duberstein notes, Fubo, like its competitors, is instead scaling up by adding entertainment content.

Most important from a broader industry perspective, Greenfield believes that Fubo lacks any “special sauce” that “can turn the fundamentally flawed MVDP/vMVPD business into a good one, especially if it lacks scale and other products to bundle.”

Part of vMVPDs’ problem, he argues, is that rather than being able to offer skinny bundles focused on the most-watched networks, they have been forced to take less-watched cable networks that giants like ViacomCBS have tied into deals for their core broadcast networks and other top-tier offerings. (See yesterday’s announcement that Hulu + Live TV has taken on 14 more ViacomCBS cable networks.)

Greenfield projects that MVPD subscriptions will decline from 66 million to 45 million over the next several years, and that vMVPDs will have only about 23 million U.S. subscribers.

He also says that vMVPDs have “notoriously” low profit margins, and that even if Fubo manages quadruple growth in the face of stiff competition, to reach 2 million subscriptions, those subscriptions will be a “zero gross margin” business.

Even after its strong Q3, Fubo “is a breakeven gross margin business on a GAAP basis,” points out Duberstein. “Subscriber-related expenses alone slightly exceeded total revenue last quarter, even with ad revenue included. With the rest of its operating expenses, Fubo lost $127 million last quarter alone.”

“That leaves advertising, which could make up the difference,” he adds. “However, ad revenue only made up 12.3% of total revenue last quarter. Fubo would have to greatly increase ad revenue going forward.”

FuboTV is “just another [vMVPD] facing the same obstacles and financial challenges as every other vMVPD,” summed up Greenfield.

The streaming company begs to differ.

The company’s “strong preliminary fourth quarter 2020 results exceeded what was already expected to be a record year for the company, and demonstrate continued consumer excitement for the company's live TV streaming offering,” co-founder and CEO David Gandler stated in releasing the select (no ad revenue numbers, for example) preliminary Q4 numbers.

“In 2021, we will continue to be laser-focused on executing our growth strategies, which include continuing to grow advertising revenues, working to implement sports wagering into our product and further establishing FuboTV as a leader in sports and live streaming.”

Fubo’s stock, which hit a high of $62 after Needham’s positive note on December 22, but had dropped to $24.20 as of January 4, was up to nearly $30 as of mid-day today, following the Q4 preview.

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