Summary List Placement
FuboTV is one of the most divisive media stocks on Wall Street.
The stock has been on a roller coaster since its initial public offering amid market speculation about the trends at FuboTV’s core, including the rise of streaming and sports gambling. Investors lined up earlier this year to short the stock amid speculation that investors would bail when the post-IPO lock-up period expired. And, for a moment, some industry experts thought FuboTV could be the next stock propelled by the legions of retail investors on the WallStreetBets Reddit forum, who were taking long positions in heavily shorted stocks, as Sportico reported.
Three former FuboTV employees, who spoke on condition of anonymity to protect future job prospects, told Insider that despite the mixed market reaction, they still believed in management’s vision for the company.
“If you get to know people behind this company, I’d find it very difficult for someone to short this company,” one of the former employees said.
Those former employees and bullish investors believe in the growth potential of streaming video and sports gambling, and that FuboTV’s leaders can figure out how to make the pay-TV economics work enough to capitalize on those trends.
But bearish investors and analysts argue that, no matter management’s vision, the pay-TV business as a standalone faces too many challenges — especially for a digital upstart — and that adding another low-margin business in sports betting can’t sustain it. They say the math simply doesn’t work.
FuboTV’s vision, led by CEO and cofounder David Gandler, hinges on the company being able to contain the programming costs in its core video business and focus on advertising for growth, as well as ancillary revenue streams like sports betting.
Gandler is a key reason the former employees said they had confidence FuboTV could build a robust streaming advertising business. He’s a seasoned ad sales exec who worked at Telemundo, Time Warner Cable, Scripps, and mostly recently the streaming service DramaFever before FuboTV.
Insiders described Gandler as a “bold” and “enthusiastic” thinker who “delivers results.” They said he had landed big content deals with a network groups like NBCUniversal, new fund raises, and big advertiser commitments. And they said he was frank with staffers about the challenges ahead.
FuboTV grew significantly in the last year, ending 2020 with more 545,000 paid subscribers, up 72% from year over year and ahead of internal targets.
But the six-year-old company is still losing money.
FuboTV posted a $72.7 million net loss, excluding one-time charges tied to a recent merger, during the third quarter of 2020, its first quarterly report since going public and the most recent period available. It reported a $6.9 million loss a year earlier.
Is FuboTV just another pay-TV provider, or something more?
FuboTV was launched as a sports-focused streaming-TV service in 2015, by Gandler and two former execs of the now-defunct Warner Bros. streaming service DramaFever, Alberto Horihuela and Sung Ho Choi.
FuboTV was part of the new generation of pay-TV providers like Hulu Live and YouTube TV that eliminated long-term contracts, set-top box rentals, and aimed to offer skinnier live-TV packages for cheap.
It went after sports fans, the most desirable of pay-TV audiences given their propensity to watch live, a behavior advertisers covet. But, constrained by the nature of TV-network group pacts, the company ended up with a blend of sports channels and general-entertainment fare from the likes of AMC Networks, Disney, NBCUniversal, and more.
FuboTV, like rivals Comcast or Sling TV, makes money from monthly TV subscriptions and by upselling customers on services like extra cloud DVR storage or additional channels. The company is not currently profitable. Subscriptions comprised 82% of FuboTV’s revenue as of its last quarterly report, which covered the first nine months of 2020.
The pay-TV model is challenging because of the high cost of programming, made more difficult by the shrinking pool of potential subscribers as people shift away from linear TV. Two streaming-TV services, AT&T Now and Playstation Vue, folded in the face of this reality over the past two years.
The vision Gandler and his cofounders had, as described to Insider by two former employees, was to build up a desirable enough audience that it wouldn’t need market dominance to make the economics work. They thought there was a threshold of subscribers that could give the company more leverage when negotiating TV contracts. The focus on sports also gave FuboTV more flexibility on the channels it would and would not distribute. But it’s unclear whether the company has reached such a tipping point on programming costs, as its latest available income statement suggests costs continued to rise.
Advertising, which is Gandler’s expertise, is also a growing share of FuboTV’s revenue, totaling $11.8 million in the first nine months of 2020. Bullish investors say FuboTV is poised to capitalize on the flow of ad dollars to streaming services, as well as the increase in gambling advertisers that are courting sports fans. It is also trying to bolster its ad businesses by attracting more subscribers and increasing the amount of time those people spend on the service.
That brings us to the unique piece of FuboTV’s model. The pay-TV provider also wants to be a sports-gambling operator, eyeing an emerging US industry that’s dominated by the likes of FanDuel and DraftKings. This could, in theory, pad FuboTV’s margins the way Comcast’s growing broadband business supports its legacy video operations. But sports betting is another highly competitive and low-margin business. Most betting operators generate revenue from other games with better margins like fantasy sports or casino games, as well.
Two of the former employees said FuboTV had been sizing up sports gambling for at least three years.
The company first moved on the opportunity in 2020. After merging with AR and VR company FaceBank (the firm behind the hologram of Tupac Shakur at Coachella) and going public, FuboTV acquired fantasy-sports startup Balto Sports and sports-betting platform Vigtory.
FuboTV said in filings that it plans to launch a sportsbook by the end of the year, and eventually roll gambling into its streaming product.
“If you ask me, that’s the biggest near-term challenge,” the second former employee said. “Can he build an experience for sports fans in a way that others have not?”
The bulls versus the bears
Shares of FuboTV are up 275% since the stock’s public debut.
To bears, like Richard Greenfield at LightShed Partners, the optics around a publicly traded sports-first streaming and gambling company are driving FuboTV’s stock momentum more than the business fundamentals.
The title of LightShed’s December 27 investor note summed it up: “FuboTV is a Money Losing vMVPD, FuboTV is not Roku nor FanDuel; Sell Now.”
The media-industry view on virtual multichannel providers (vMPVDs) like Sling TV has soured in the last year or two, as subscriber gains by those platforms have failed to offset losses by traditional operators.
LightShed estimated in a January 19 investor note that FuboTV would need to raise at least $1 billion of equity in 2021 to finance its sports-betting operations. (FuboTV announced a $350 million convertible-note offering later that month.) And, even then, it’d be hard-pressed to challenge incumbents like FanDuel, DraftKings, and BetMGM.
Greenfield has also pointed on Twitter to investors like Discovery and AMC Networks that have sold all or significant portions of their holdings in Fubo since the post-IPO lock-up period expired on December 30, as a sign that the core video business faces steep challenges.
But, to bulls like Needham, FuboTV stock is a cheap way for investors to get in on the shift in eyeballs and ad dollars to streaming that has driven up the valuations of stocks like Roku, The Trade Desk, and Netflix. They see upside in FuboTV continuing to grow its subscriber base and boost ad revenue year over year. Success in sports betting would be a bonus.
“While FUBO is focused on growing its installed base of subscribers, we are most excited about high-margin add-on new revenue streams such as up-sells, advertising, wagering, channel fees,” Needham analysts wrote in a January 5 investor note.