fuboTV Inventory: Down To 1.6x Income, Don’t Miss To Purchase (NYSE:FUBO)

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fuboTV Inc. (NYSE:FUBO) The stock has taken a beating in recent months. It hit its all-time high (ATH) in February of last year, but its momentum spike was quickly digested. While it has traded in a tight range for most of 2021, its momentum started to turn extremely bearish from November.

As an unprofitable company, the outlook for investors has always been at least five years ahead. That doesn’t mean the stock is immune to near-term volatility, however. Given that outlook and the rotation into value stocks, we’re not surprised that investors have suffered. Additionally, the streaming space has also seen significant compression of multiples recently, which has impacted its stock.

Consequently, it has pushed FUBO stock down to a valuation of just 1.6 times NTM sales. We discuss why we think fuboTV stock still deserves a place in speculative portfolios of long-term investors.

Readers who are new to FUBO can also refer to our previous article here.

Analyzing the hit for its scores

fuboTV peers EV/NTM revenue trend

EV/NTM revenue of peers 3M trend

TICR

Readers can quickly understand how compression in the streaming space has impacted both the subscription VOD (SVOD) leaders and the advertising-supported (AVOD) leaders. That includes Disney (NYSE:DIS), as the multiple re-ratings in 2021 were also due to the momentum of its Disney+ SVOD service. Among the competitors listed here, Disney’s multiple has been the least affected over the past three months. Finally, Disney’s well-diversified assets across parks and the broader entertainment categories have better protected it from the moderation seen in Disney+ subscriber growth. However, its pure-play streaming peers like Netflix (NASDAQ:NFLX), Year (NASDAQ:ROKU), and fuboTV do not have a “reopening” game to cushion the impact. Consequently, the success of fuboTV was also massive as it went from 5.7x NTM revenue to 1.6x in just three months.

Netflix’s recently released FQ4’21 report sheet has also contributed significantly to compression across the streaming space. As the SVOD leader, Netflix is ​​considered a leader. Additionally, it not only missed Q4 subscriber net additions (8.28M vs 8.5M consensus) but also issued a hugely disappointing Q1 22 guidance. Notably, Netflix only added 2.5 million net new subscribers for FQ1 (6.9 million consensus). It’s also well below last year’s net additions of 3.98 million. As a result, the company suffered its worst one-day decline since July 2012, when investors began digesting the valuations of these pure-play streamers. Therefore, the fuboTV share was also significantly affected. It also dropped its share price back to its IPO price on October 20. Given the recent volatility that has been seen, the potential for a larger pullback began to emerge.

But fuboTV worked fine

There should be no doubt that fuboTV is still unprofitable. It’s still a young upstart in the vMVPD space, including giants like Disney Hulu + Live TV and YouTube TV (NASDAQ:GOOGL) (NASDAQ:GOG). However, recent data has also shown that the vMVPD space has continued to perform relatively well, even if growth has slowed somewhat. MoffettNathanson noted that the vMVPD market added 980,000 subscribers in CQ3’21, up sequentially. However, it also noted that it’s down year-over-year from last year’s 1.7 million additions. We also highlighted in our previous article that fuboTV added 263,000 subscribers as its subscriber base approached 1 million.

Notably, the company recently released its preliminary fourth-quarter results, in which it raised its full-year revenue guidance to between $622 million and $627 million (previous guidance: $612 million to $617 million). This represents a notable year-over-year increase of 138-140%. It also highlighted that its subscriber base is expected to surpass 1.1 million (previous guidance: 1.06-1.07 million). Hence, it is clear that fuboTV has been successful in gaining subscribers with its sports-focused aggregation strategy. In addition, it also highlighted that churn has decreased “by more than 200 basis points year-on-year.” Additionally, fuboTV expects customer acquisition costs to be at the lower end of its ARPU range (1-1.5x).

fuboTV gross margin

fuboTV gross margin

S&P Capital IQ

Much of the bearish thesis focused on the low-margin content aggregation model and the cost of customer acquisition. The adjusted contribution margin improved to 12.4% in the third quarter. However, gross margins are still in the red (see above). As a result, the bears are wondering when fuboTV will ever turn a profit. We believe these concerns are justified. However, fuboTV’s monetization strategies are not only based on content aggregation. Given that sports content is often expensive, it will be a challenge for fuboTV to find compelling investment arguments based solely on sports content licensing. However, it also highlighted that 96% of its subscribers watch sports. Therefore, it can amortize its content cost through these subscribers, lowering its cost per subscriber. We believe it is credible. We can also see its gross margin improving, indicating its leverage on its content costs.

Additionally, the company emphasized that its ability to negotiate lower costs on renewal calls is related to the size of its subscriber base. It is therefore imperative that fuboTV continues to scale. CFO Simone Nardi highlighted (edited):

We continue to optimize our content costs. We leverage our larger scale when we come to renewal to receive an additional benefit on a margin basis, which may be a direct rate match with an overwrap or other benefits that can improve our financial return margins. We believe that these opportunities, these levers, can be further expanded in the future. (24th Annual Needham Growth Conference)

Additionally, the company’s advertising leverage continues to grow rapidly despite the headwinds the digital advertising industry has experienced this year. fuboTV operates its own CTV platform and thus has access to its own first-party data. As a result, it doesn’t have to rely on third-party targeting and attribution models. Still, it’s still a fledgling segment, as advertising is expected to account for less than 12% of FQ4 revenue. However, its growth has been notable as it approaches an annualized run rate of $100 million. Therefore, we believe that fuboTV has shown that its platform can work. It just needs to continue executing its high-growth strategies with an eye on long-term profitability.

fuboTV is geared towards long-term profitability

What we particularly like about management is their commitment to long-term profitability. It has consistently mentioned improving operational leverage and demonstrated it in its 2021 results as well. Additionally, CEO David Gandler stressed that it’s poised to host an analyst/investor day sometime this year. As a result, we believe fuboTV is ready to discuss its long-term operating model and build on its momentum of achieving operational leverage over the past year. Thus, fuboTV is a company that has made tremendous progress, although its stock price says otherwise.

In particular, the company’s foray into online sports betting (OSB) is driven by its commitment to long-term profitability. Gandler pointed to the “unsustainable” spending by leading OSB players like DraftKings (NASDAQ:DKNG) and FanDuel (DUEL) (OTCPK:PDYPF) at the recent launch of mobile sports betting in New York (NY). NY is a key state that could become the largest in terms of gross sales. Therefore, the leading OSB suppliers are likely to compete aggressively (through ad spend) to gain market share, which is crucial for them to reach sufficient scale given the 51% tax rate. We also discussed DraftKings in a recent article.

However, fuboTV considers such spending to be unsustainable. Gandler believes the company’s differentiated mobile sportsbook is much better positioned for profitability as it relies on cross-selling its installed subscriber base. This means the company doesn’t have to aggressively spend money to attract bettors to its sportsbook. Gandler explained (edited):

I think if we’ve seen something in New York in the first 48 hours, the ad spend is absolutely insane. But betting on fuboTV is a natural extension of our streaming product. And it’s a differentiated opportunity and that’s why you’re starting to see a lot of interest in partnering with us because we have an offering that we think a lot of operators will find differentiated. I was initially hoping that we would see a 20 percent crossover. But our most recent data showed that 30% of total registrations in the first two very small states (Iowa and Arizona) are crossovers. That means they have the fuboTV Sportsbook and streaming product. So that’s already 50% better than we originally expected. (Needham Conference)

So is the FUBO share a buy it now?

We already explained in our December article that fuboTV’s stock valuation is getting cheaper but in line with its old media peers. However, it has gotten a lot cheaper as sales have gone into overdrive. However, we believe the sale is overdone as it is trading at just 1.6 times NTM sales, lower than some of its old media peers but still set to grow much faster. In addition, we are convinced that Gandler & Co. has embarked on a viable path towards profitability.

Still, FUBO stock is a highly volatile stock. Additionally, we don’t expect it to report profitability anytime soon. Therefore, investors should have at least a five year investment horizon when deciding to buy FUBO shares. In addition, we believe that it is only suitable for speculative investors.

We therefore confirm our buy recommendation for the FUBO share.

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