Netflix came in strong with the recent earnings and there is no reason to expect Roku will not also come in strong especially as Covid and stay-at-home orders have accelerated the shift towards Connected TV.
It's easy to compare Roku's roughly 50 million users to Netflix's 200 million and to assume Roku is a much smaller company or lagging the subscription behemoths, such as Disney Plus. This is a mistake as the ad-based video-on-demand (AVOD) market is a newer market than subscription-video on demand (SVOD). The AVOD market is distinguished from SVOD because it's primary driver is pay-TV ad dollars rather than the cord-cutting trend or subscribers.
About $10 billion is spent on Connected TV ads compared to $70 billion on pay television ads in the United States alone. Pay-TV ad spend is now expected to decline by 15% to $60 billion this year due to the postponement of live sports and also due to an increase in cord-cutting from covid.
Here's something to consider – cord-cutters aren't going back to cable, and this places Pay TV ad budgets in a dilemma. These budgets have not cared much for mobile or desktop. Despite the sheer number of data scientists and (frightening) level of behavioral targeting used by Google and Facebook, Pay TV has held on to an impressive level of ad spend at about $70 billion in 2019 compared to $87 billion on mobile. One reason is that advertising on the television is more effective – no amount of data collection can change the video completion rate achieved when you're sitting in your living room.
Although these budgets have not migrated to mobile or desktop in the past, those advertisers now have an opportunity to use data to personalize the advertising while viewers are in their living rooms. Roku and AVOD are the best of both worlds – combining data for targeting and high completion and viewability rates — and this creates a unique market from SVOD. For reference, completion rates on Connected TV ads are as high as 97% with 100% viewability, according to a study by Benchmark.
Below, I review Netflix's earnings as it's essential to keep an eye on exactly how long a winner can run in the OTT media category. I also review Roku's upcoming earnings and what to look for.
Review of Netflix Earnings:
Netflix surpassed expectations again in Q4 despite many believing the increase in Disney Plus subscribers and HBO Max would weigh on Netflix's subscriber results.
To be fair, the real test is yet to come as dining out, travel, and return-to-work patterns begin to normalize. Netflix is guiding conservatively for Q1 with 6 million net additions.
Revenue grew 21% YoY to $6.6B, topping consensus estimates by $20M. Net adds of 8.5M came in well ahead of expectations calling for 6M. Netflix now expects 2021 free-cash-flow to be “around break-even” versus previous guidance of -$1B. The company also intends to explore a share repurchase program moving forward:
“Combined with our $8.2B cash balance and our $750M undrawn credit facility, we believe we no longer have a need to raise external financing for our day-to-day operations…As we generate excess cash, we intend to maintain $10B-15B in gross debt and will explore returning cash to shareholders through ongoing stock buybacks, as we did in the past (2007-2011)."
Competition has been one of Wall Street's primary concerns regarding Netflix. In Q4, Netflix maintained a healthy lead over the competition with 29% market share. In Q4 2019, Netflix had 31% share of the streaming market. Keep in mind, the market is growing overall so a smaller percentage can still represent subscriber and revenue growth.
NIELSEN, CREDIT SUISSE
Despite the modest decline in the share of minutes watched, it is evident that competition did not bite into Netflix’s net adds in 2020.
Source: Netflix Shareholder Letter
This supports the thesis that other streaming services, namely Disney+, are complementary to Netflix. Netflix just completed its best year in history while Disney+ and other new streaming services became available. Consumer behavior is showing that consumers prefer to have multiple subscription services.
In Q4, Netflix had 57.2M global app downloads versus 53.5M for Disney+. In Q4 '18 and '19, Netflix had 53M and 58M global app downloads, respectively. These numbers indicate that the success of Disney+ is not coming at the expense of Netflix. Instead, Disney+ is a complimentary service helping to further the acceleration of streaming to the TV.
Streaming to the TV gained significant market share versus all other TV usage during the pandemic.
NIELSEN
Streaming to the TV now owns over a 20% share of the market. The increased demand for streaming during lockdowns represents the acceleration of a trend that was already in progress.
Although I do not own Netflix stock, I track the company closely as I’m invested in other opportunities in this space. I’ve remained bullish on this stock when others doubted its position as new competitors came on the market.
I have also written extensively about why Roku is one of the best ways to play AVOD market growth. Our first entry in ROKU came in the $30 range in 2018, and we remain bullish on the name moving forward. You can read my first article covering Roku in 2018 here.
An investment in Roku does not force investors to choose which streaming service will be #1, as Roku benefits from the success of a broad range of AVOD publishers. Advertisers are planning out strategies to reach cord-cutters effectively, and Roku stands to be a main beneficiary. Roku is positioned to capitalize on AVOD market growth and has now launched an omnichannel marketing platform to extend first-party data for mobile and desktop targeting. This last part is key because Roku can now capitalize not only the $10 billion currently spent on CTV ads and the soon-to-migrate $70 billion from Pay TV – but Roku will offer additional targeting on mobile and desktop with first-party data – opening up the entire $200 billion+ ad market.
For Q3, Roku reported 73% year-over-year revenue to $452 million. Platform revenue increased 78% YoY, and gross profit was up 81% YoY.
In the past, investors have been critical of Roku for dipping sub-60% on margins. I defended the company, stating margins are rarely an issue for an ad-tech company. Roku added 2.9 million incremental accounts with average revenue per user (ARPU) up 20% to $27.00.
Roku is guiding low for a quarter when most people were stuck at home. In general, this management guides low, stays focused, and is out of the limelight. Q4 guidance is for revenue growth in the mid-40% range with a breakdown of platform revenue at 2/3. My guess is Roku will handsomely beat this guidance.
In December, AT&T announced that customers could watch HBO Max on Roku. Part of our early analysis on Roku pointed towards agnosticism working in Roku's favor and the strength of the operating system and number of channels. This was a timely boon as HBO Max had become the fastest-growing major streaming service recently per data from Apptopia with 1984 Wonder Woman being released on Christmas Day.
Over a year later, my statement on why no streaming company will be able to dethrone Netflix in October of 2019 remains true. Disney Plus and HBO Max are great services, as well, but they are not mutually exclusive.
Regarding Roku, we believe first-party data for connected TV ads is a significant trend moving into 2021 and an important distinction from subscription-video on demand (SVOD). Therefore, the main takeaway is that AVOD has an approximate ten-year runway as the trend began taking shape when Roku launched its ad platform in late 2018/early 2019. There were AVOD players in the space before this, but the budgets were negligible. Therefore, the cord-cutting trend is secondary for Roku, whereas Pay TV ad budgets' migration is the primary trend.
There are other reasons that I like Roku, such as owning the whole stack including the operating system, the management, it’s global opportunity, the agnosticism, etcetera– which I have covered in previous analysis. However, I try to keep things simple when discussing my thesis, and the migration of Pay TV ad budgets combined with Roku’s first-party data is why this stock has its best years ahead.
This article was originally published on Forbes on Jan 21, 2021,11:20pm ESTForbes on Jan 21, 2021,11:20pm EST
Netflix came in strong with the recent earnings and there is no reason to expect Roku will not also come in strong especially as Covid and stay-at-home orders have accelerated the shift towards Connected TV.
It's easy to compare Roku's roughly 50 million users to Netflix's 200 million and to assume Roku is a much smaller company or lagging the subscription behemoths, such as Disney Plus. This is a mistake as the ad-based video-on-demand (AVOD) market is a newer market than subscription-video on demand (SVOD). The AVOD market is distinguished from SVOD because it's primary driver is pay-TV ad dollars rather than the cord-cutting trend or subscribers.
About $10 billion is spent on Connected TV ads compared to $70 billion on pay television ads in the United States alone. Pay-TV ad spend is now expected to decline by 15% to $60 billion this year due to the postponement of live sports and also due to an increase in cord-cutting from covid.
Here's something to consider – cord-cutters aren't going back to cable, and this places Pay TV ad budgets in a dilemma. These budgets have not cared much for mobile or desktop. Despite the sheer number of data scientists and (frightening) level of behavioral targeting used by Google and Facebook, Pay TV has held on to an impressive level of ad spend at about $70 billion in 2019 compared to $87 billion on mobile. One reason is that advertising on the television is more effective – no amount of data collection can change the video completion rate achieved when you're sitting in your living room.
Although these budgets have not migrated to mobile or desktop in the past, those advertisers now have an opportunity to use data to personalize the advertising while viewers are in their living rooms. Roku and AVOD are the best of both worlds – combining data for targeting and high completion and viewability rates — and this creates a unique market from SVOD. For reference, completion rates on Connected TV ads are as high as 97% with 100% viewability, according to a study by Benchmark.
Below, I review Netflix's earnings as it's essential to keep an eye on exactly how long a winner can run in the OTT media category. I also review Roku's upcoming earnings and what to look for.
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Review of Netflix Earnings:
Netflix surpassed expectations again in Q4 despite many believing the increase in Disney Plus subscribers and HBO Max would weigh on Netflix's subscriber results.
To be fair, the real test is yet to come as dining out, travel, and return-to-work patterns begin to normalize. Netflix is guiding conservatively for Q1 with 6 million net additions.
Revenue grew 21% YoY to $6.6B, topping consensus estimates by $20M. Net adds of 8.5M came in well ahead of expectations calling for 6M. Netflix now expects 2021 free-cash-flow to be “around break-even” versus previous guidance of -$1B. The company also intends to explore a share repurchase program moving forward:
“Combined with our $8.2B cash balance and our $750M undrawn credit facility, we believe we no longer have a need to raise external financing for our day-to-day operations…As we generate excess cash, we intend to maintain $10B-15B in gross debt and will explore returning cash to shareholders through ongoing stock buybacks, as we did in the past (2007-2011)."
Competition has been one of Wall Street's primary concerns regarding Netflix. In Q4, Netflix maintained a healthy lead over the competition with 29% market share. In Q4 2019, Netflix had 31% share of the streaming market. Keep in mind, the market is growing overall so a smaller percentage can still represent subscriber and revenue growth.
Q4 US Video Streaming: Share By Brand – NIELSEN, CREDIT SUISSE
Despite the modest decline in the share of minutes watched, it is evident that competition did not bite into Netflix’s net adds in 2020.
NETFLIX SHAREHOLDER LETTER
This supports the thesis that other streaming services, namely Disney+, are complementary to Netflix. Netflix just completed its best year in history while Disney+ and other new streaming services became available. Consumer behavior is showing that consumers prefer to have multiple subscription services.
In Q4, Netflix had 57.2M global app downloads versus 53.5M for Disney+. In Q4 '18 and '19, Netflix had 53M and 58M global app downloads, respectively. These numbers indicate that the success of Disney+ is not coming at the expense of Netflix. Instead, Disney+ is a complimentary service helping to further the acceleration of streaming to the TV.
Streaming to the TV gained significant market share versus all other TV usage during the pandemic.
NIELSEN
Streaming to the TV now owns over a 20% share of the market. The increased demand for streaming during lockdowns represents the acceleration of a trend that was already in progress.
Although I do not own Netflix stock, I track the company closely as I’m invested in other opportunities in this space. I’ve remained bullish on this stock when others doubted its position as new competitors came on the market.
I have also written extensively about why Roku is one of the best ways to play AVOD market growth. Our first entry in ROKU came in the $30 range in 2018, and we remain bullish on the name moving forward. You can read my first article covering Roku in 2018 here.
An investment in Roku does not force investors to choose which streaming service will be #1, as Roku benefits from the success of a broad range of AVOD publishers. Advertisers are planning out strategies to reach cord-cutters effectively, and Roku stands to be a main beneficiary. Roku is positioned to capitalize on AVOD market growth and has now launched an omnichannel marketing platform to extend first-party data for mobile and desktop targeting. This last part is key because Roku can now capitalize not only the $10 billion currently spent on CTV ads and the soon-to-migrate $70 billion from Pay TV – but Roku will offer additional targeting on mobile and desktop with first-party data – opening up the entire $200 billion+ ad market.
For Q3, Roku reported 73% year-over-year revenue to $452 million. Platform revenue increased 78% YoY, and gross profit was up 81% YoY.
In the past, investors have been critical of Roku for dipping sub-60% on margins. I defended the company, stating margins are rarely an issue for an ad-tech company. Roku added 2.9 million incremental accounts with average revenue per user (ARPU) up 20% to $27.00.
Roku is guiding low for a quarter when most people were stuck at home. In general, this management guides low, stays focused, and is out of the limelight. Q4 guidance is for revenue growth in the mid-40% range with a breakdown of platform revenue at 2/3. My guess is Roku will handsomely beat this guidance.
In December, AT&T announced that customers could watch HBO Max on Roku. Part of our early analysis on Roku pointed towards agnosticism working in Roku's favor and the strength of the operating system and number of channels. This was a timely boon as HBO Max had become the fastest-growing major streaming service recently per data from Apptopia with 1984 Wonder Woman being released on Christmas Day.
APPTOPIA
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Conclusion:
Over a year later, my statement on why no streaming company will be able to dethrone Netflix in October of 2019 remains true. Disney Plus and HBO Max are great services, as well, but they are not mutually exclusive.
Regarding Roku, we believe first-party data for connected TV ads is a significant trend moving into 2021 and an important distinction from subscription-video on demand (SVOD). Therefore, the main takeaway is that AVOD has an approximate ten-year runway as the trend began taking shape when Roku launched its ad platform in late 2018/early 2019. There were AVOD players in the space before this, but the budgets were negligible. Therefore, the cord-cutting trend is secondary for Roku, whereas Pay TV ad budgets' migration is the primary trend.
There are other reasons that I like Roku, such as owning the whole stack including the operating system, the management, it’s global opportunity, the agnosticism, etcetera– which I have covered in previous analysis. However, I try to keep things simple when discussing my thesis, and the migration of Pay TV ad budgets combined with Roku’s first-party data is why this stock has its best years ahead.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
Atomera offers Mears Silicon Technology (MST). The team at Atomera has been developing this technology since 2001. The technology works on an atomic level to insert thin layers of non-semiconductor material to increase the “concentration of dopants.”
Atomera has developed MST wafers with the goal of replacing current specialty wafers by keeping the cost the same but delivering an increase in performance. In more simple terms, the goal of MST is to reduce the effects of Moore’s Law by reducing chip size, delivering higher electron-mobility and increasing the performance of the transistor. According to third-party PMIC and per Atomera’s website, MST can result in 16-21% reduced chip size.
The Joint Development Agreement (JDA) is with a “leading semiconductor provider” and includes “a manufacturing license allowing the customer to fabricate semiconductor wafers incorporating MST for use in their products.” Ideally, we would have been provided a name. In absence of this, I mused on the forum earlier today that perhaps it’s 5G related due to the CEO having quite a bit of mobile on his resume with VP and GM positions in the mobile division of Broadcom and also from Altera. However, until the company announces this, we won’t have any way of knowing.
Theoretically, if one company uses MST then others will follow because MST provides a competitive advantage by reducing chip size and enhancing transistor capabilities. MST also helps memory/DRAM designers by reducing the size of the chip without moving to a new technology node. In the previous report that I published, I outlined that using MST/Atomera would cost around $40 to $60 million total while a foundry for a new node can cost billions of dollars – so MST saves quite a bit here.
In the past, I’ve called Atomera a Hail Mary play. I’d say we are now on the 1-yard line.
Atomera has always been an all-or-nothing proposition as the company is essentially pre-revenue. This is a company where we saw there could be an important need for the product/invention as the semis race heats up. You’re seeing major evidence of the semi race right now and even the smallest advantage can make an impact between competitors.
We attempted a position around March but did not remain in our position because we wanted to allocate our money elsewhere until the first licensing agreement was announced. We like where the company is at now as far as risk/reward.
Atomera is pre-revenue. The company reported only $62,000 in the first nine month of 2020 compared to $395,00 for the same period last year.
The company loses roughly $12 million per year so it’s not surprising the company raised cash recently with a $25 million offering on January 5th, 2021. The company also sold shares of 845,730 for net proceeds of $8.6 million.
Net cash used in operating activities for the nine months ending September 30th was $9.1 million. In the most recent quarter, the net loss was $3.6 million or EPS of ($0.19).
There is only one analyst covering the company with estimates of EPS ($0.62) for 2021 and revenue of $130,000 for 2020 compared to estimates of $3.5 million for 2021.
Revenue is generated from integrated licensing agreements. Customers pay a licensing fee to use MST technology in the manufacturing of silicon wafers. Royalties are paid for each silicon wafer or device that incorporates the MST technology.
When we say an all-or-nothing proposition, what we mean is that Atomera can become profitable off the royalties from one wafer fab company and there are 370 wafer fabs worldwide. The annual revenue at 50% ramp from an average sized fabrication company would be $6.7 million in revenue. The annual revenue at 50% ramp from a larger foundry would be $29 million in revenue at a 2% royalty rate.
Please note, as discussed in an investor’s call in December, the royalty ranges from 1-3% depending on the size of the fab. The larger the fab, the lower the royalty fee. According to one analyst who covers the stock closely, once adopted, the technology will be used for a minimum of 7 years.
The company provided the following in the recent Investors Presentation last month:
If the company is truly “working with 50% of the world’s top semiconductor makers” and the first licensing agreement was announced, then perhaps the rest will line-up nicely (and quickly for our sake).
Target customers (i.e., not current customers but more like addressable market) include Samsung, Micron, Intel, Texas Instruments, NXP, SK Hynix, Qualcomm, Marvell, Broadcom, Skyworks, Qorvo, Taiwan Semiconductors, Applied Materials and more. You can view the full list here on page 3.
The total addressable market outlined here on pages 9-10 is between $6 to $7 billion in royalty fees primarily driven by FinFET and Advanced Nodes ($6 billion), RF SOI ($50 million) and 5V Analog ($660 million).
In a previous Investors Presentation, the company discussed having licenses with STMicroelectronics and Ahashi.
Prior to the announcement, the CEO was cautious to say when a manufacturing license would be issued. From what I’ve seen from Atomera, they’ve always been very diligent to distinguish between the various phases and potential setbacks that testing and integration can cause. The ultimate goal, whether in conversations such as the one below, or in the Investor Presentations, is the licensing as this is what creates revenue.
This is from a conference in September:
“When do we believe it will happen? We have not typically predicted when we will get to commercial production. One of the reasons is when customers work with us, it takes 9 months for us to do a single evaluation run with them. Maybe even longer. Um, and in the past, we’ve experienced a lot of times we have a good evaluation run with a customer, they get a good result and they want to do another one to try to make the result even better. And so that’s how these types of technologies are brought to market. So if we believe that we’re gonna reach the end in 3 months, we may find out that at the end of that we have another 9 months in front of it. We avoid predicting that but we are in the late stages of evaluation and integration with many different companies, and we’re hopeful that we’ll reach a manufacturing license with them relatively quickly.”We avoid predicting that but we are in the late stages of evaluation and integration with many different companies, and we’re hopeful that we’ll reach a manufacturing license with them relatively quickly.”
The CEO grew a $1 billion-plus division at Broadcom and also worked as an SVP and GM at Altera – which was a competitor to Xilinx before being bought out by Intel. He comes specifically from a mobile background. The CTO has been inventing and working on patents for broadband networks for 30 years and is who MST is named after. As I said last March, I don’t see any flags here and I think management has been very transparent leading up to this point.
I look forward to hearing what company the manufacturing licensing agreement is with and how soon the royalty fees will affect the top line.
Please note, we are very early to Atomera and there will always be time to consider the stock later down the line when it carries less risk. That is the beauty of small caps and tracking them early. Anytime there are debates about companies that are higher risk, the answer is almost always “revisit later” for anyone who is not comfortable with the risk profile.
We like the JDA and licensing announcement and we are following a plan we set in May for this company – however, Knox is critical here (more so, than say, a position in Microsoft). Knox is very good at stops and tracking technicals so we are combining a few of Knox’s techniques right now.
Earlier this month, I joined Jason Calacanis and Alex Wilhelm on “This Week in Startups.” We discussed the current state of the IPO market, Zoom’s pricing power, top stock picks for 2021, and some of the most anticipated IPOs of 2021.
The conversation begins with a discussion about the IPO market and some of the recent froth we have seen. The recent offerings of DoorDash, Airbnb, and C3.ai demonstrate how much demand and hype we are currently seeing for new issues. We discuss if this is sustainable and if future companies are better off going public via a direct listing.
Later, we talk about valuations and different accounting methods companies sometimes use to enhance their numbers. The discussion shifts to Slack’s acquisition and some key differences that allowed Zoom to have more success. I talk about Zoom’s pricing power and why I believe it will continue to thrive in a post-pandemic world.
We wrap up the interview by talking about our top stock picks for 2021 and what IPOs we are most looking forward to next year. My answers include a stock in connected TV space and a fast-growing AI company set to debut in the first half of 2021.
Although I do discuss Luminar, I’ve since cooled off from the company following the announcement that Mobileye is making their own LiDAR sensors.
You can access my full interview on “This Week in Startups” below:
Access the interview here:
Interview timestamps:
0:55 – Introduction
3:30 – Thoughts on Airbnb (ABNB) and DoorDash (DASH) IPOs and valuations
4:20 – Thoughts on Luminar (LAZR) and C3.ai (AI)
7:25 – Discussion about direct listings vs IPOs
10:30 – What multiples do you consider attractive vs unattractive?
15:00 – Discussion about Non-GAAP metrics and “creative accounting” methods companies use
18:00 – Thoughts on Snowflake (SNOW) and adjusting growth for the age of the company
20:20 – Discussion about the Slack (WORK) acquisition
28:45 – What do you think about Zoom Video (ZM) and DoorDash (DASH) post-pandemic?
41:00 – Discussion about Zoom’s pricing power
49:00 – Top stock picks for 2021
58:40 – Discussion about C3.ai (AI)
1:00:15 – Thoughts on SPACs
1:06:00 – Most anticipated IPOs of 2021
1:11:00 – Risk of investing in China-based companies
I first recommended Bitcoin to my free newsletter readers in June of 2019. Although I was already a proponent of Bitcoin (enough even to attend conferences), I knew it was time to bring the Bitcoin thesis to my readers in the public markets. I was hesitant because it was bold at the time to cover Bitcoin fundamentally for stock investors.
In August of 2019, my technical analyst – Knox Ridley — urged me to release a full-length PDF on the premium site with my target market caps so he could start guiding entries. He was adamant we needed to start guiding entry points because his technicals showed a solid long-term outlook.
In celebration of Bitcoin’s rally, we are releasing the premium PDF below and all other research. We are also going to start publicly releasing entries for Bitcoin (see below).
Here’s why you should read the PDF: we are coming up on the first target market cap listed in the report and we have a few market cap targets to go. I’m not saying target price because my analysis, in this case, was tied to market cap. Bitcoin’s price only seems exhorbitant but when tied to market cap — less so. You will find these market caps in the report from August of 2019.
Knox has guided eight entries into Bitcoin on our premium site since we covered the asset 18 months ago. His last entry published only a month ago is already up 86%. His first entry is up 393%. This is invaluable because it always feels like Bitcoin is too high (or too scary!) and yet it finds its legs and rallies again.
Knox is going to start releasing Bitcoin entries and exits for free on his Twitter account. For one, you’ll see how incredibly good he is, especially at Bitcoin because he has been tracking it daily for about two years. Secondly, you’ll be able to gauge the undulations of the crypto market and perhaps feel more confident by following whether Knox plans to enter again or not.
This is the value proposition we offer. After we pick the stocks and enter them, we do not leave people to fend for themselves. We continually find new entries at higher prices with our own money so people can gain confidence in entering tech growth stocks at higher levels (when warranted). How many Bitcoin bulls help you find new entries after they’ve secured low entry points? That’s exactly what Knox does.
Please note — my free newsletter subscribers have gotten Bitcoin coverage since June of 2019 since it was priced at $11,146 or +244%. Our lowest entry on the premium site is at $7563 or +393% and our most recent entry was only a month ago and is up 86%. Even if you missed the coverage in 2019 – I covered it again in June 2020 for my free newsletter subscribers with “Why I’m Stacking Satoshis” when bitcoin was priced at $9304 or up +313% – You can see that despite sideways and even downward movement, I remained bullish and vocalized this.
My goal is to make sure you know that I try to bring really solid opportunities to my free newsletter readers as a tech analyst. My ideas are never recycled — and most of the time — I’m early to a fault.
The point being, I look forward to doing more of the same for you in 2021. Thanks for all of your support this year – I truly appreciate your readership.
This PDF will help guide entry and predicts that 2020 will be an important year, and thus to establish a bitcoin position in 2019. Below is background information on why the newly-launched Lightning Network is key to bitcoin’s success – something that has not been widely discussed. We also cover the halving of bitcoin to occur in 2020 (and how this affects price), and the potential market cap for bitcoin to help put our price target in perspective.
A more detailed report on bitcoin will follow in the coming weeks. In summary, we see BTC trading to $60,000 plus in the coming years. The fundamental thesis supports the price action on this move, and we will publish this for you in mid-September. The question is – will we have a major retrace before this move, or will we breakout from here, leaving these levels behind?
The largest bitcoin conference in the world took place last month in San Francisco with many early pioneers discussing why bitcoin has made a good investment for them and why bitcoin investments will do well long-term. You can view highlights from the Bitcoin conference here.
In the previous analysis, we discussed one primary reason that bitcoin will make a good long-term investment, as the price is likely to go up and stabilize once institutions gain SEC-regulated access. Fidelity and the NYSE-founded Bakkt are two examples of platforms that will influence the first phase of bitcoin’s broader adoption. These two platforms have not yet launched, but a new supply-and-demand dynamic will occur when institutional investors can access cryptocurrencies.
Institutional adoption of bitcoin and economic uncertainty are two phases previously discussed in this series that evaluates if bitcoin will make a good investment. Finding the right entry price is critical for a buy and hold strategy as there is unusual volatility in this asset. Trading bitcoin may be successful for some; however, this series predicts that holding bitcoin until the technology matures is the better option – all of which is dependent on the right entry price for this volatile, yet high-potential asset
Last July, I began covering bitcoin. The premise was based on three phases for widespread adoption: institutional adoption, global economic uncertainty, and mobile payments. With Square’s cash app reporting fifty percent of its payments being made in bitcoin, or $178 million, it’s time to revisit why bitcoin is a transformative technology that is often misunderstood. Square’s report was for the period between October 1st and December 31st, which represented an increase of 50 percent over the prior two quarters.
Last week, the world’s largest bitcoin conference took place in San Francisco. Despite bitcoin holding a $200 billion market cap in Q2 2019, cryptocurrency conferences receive less press than tech conferences from companies with comparable market caps, such as Oracle World, Dream Force or even Oktane, a conference by a company with a fraction of the market cap that receives ample press coverage.
We held a webinar on Tuesday reviewing our long-term buy and hold positions. You can access the webinar here. We recommend listening as it’s more of an annual review and includes information on how to best use our site.
Below, I follow up on the remaining ten or so positions in our portfolio. Our blog on the first half was published last week and can be accessed here.
When creating the presentation, I overlooked our long position on Docusign! We are long Docusign and I’ve included the notes below. This blog covers: DOCU, ROKU, ZM, SNAP, UNITY, FUBO, MGNI, BAND, SHOP, TDOC, AMWL and TWLO.
DocuSign:
The reason we don’t think Docusign is a temporary covid stock is that it’s hard to go back to paper for the real estate, legal and finance industries at this point. Not only are e-signatures easier but they create a digital file. These particular industries have been slow to convert to digital tools. (Anyone who has closed a house at a title company can tell you it’s long overdue).
We like DocuSign as we also don’t believe these industries will shop an endless number of competitors or creative solutions. Universal acceptance is key here. Real estate is a great example – once the lenders, the title company and the real estate professionals use DocuSign (which many of them do now), each of them benefits from having a seamless experience and won’t want to break course unless necessary. In this way, the fact these industries are not the most innovative in terms of technology helps DocuSign in its quest to become the universal standard.
We will keep you updated if the competitive landscape changes or if these industries revert back to paper in droves J
Roku, Magnite and FuboTV:
We are always scanning for areas of tech that the market is underestimating. Last year around this time it was cloud. This year, we think one of the trends underestimated is connected TV and OTT. We covered where we are in the hype cycle from Gartner with 2021-2024 being the years when this trend takes off. We believe Gartner is perfectly on target with ad dollars migrating as we speak.
Notably, we had mentioned that Roku would likely have a strong second half of the year as Pay TV ad budgets are re-negotiated in the Fall. If you’re long Roku or interested in hearing more, then I recommend reading this blog update on Roku from June where I note Roku mgmt talking about increased financial commitments in the fall.
In the blog post, I said the years between 2022-2023 but am bumping that up now for a few reasons (Gartner’s hype cycle has always stated 2021-2024 but I see more confirmation that Gartner is right about the real start date for the bigger years)
Here are some updated thoughts on why we are leaning heavily into this trend and taking some key risks:
The hype cycle is a powerful thing and we are fully aware that we are not in the cord-cutting trend – we are in the ad budget migration trend
The signs we are seeing are not only in the fundamentals of companies like Roku and TTD’s CTV ads but also Disney’s very big moves this year. We think Disney going all-in on CTV ads and OTT live streaming is being under-reported.
Disney is the world’s most influential media corporation. By Disney giving this trend the green light, we think bigger yet more traditional brand dollars will follow.
Remember, we didn’t see as many ad dollars migrate to mobile, Google and Facebook, as you would think. Even with all of their data scientists and behavioral targeting for higher ROI – they only could get 50% of the budgets to migrate after a decade of dominance. It’s now around 60%. That leaves 40% for CTV ads and potentially back to 50% with the data CTV ads offer.
Hopefully, you caught the importance of my last bullet point — there is roughly $10 billion being spent on CTV ads right now and about $70 billion on Pay TV ads.We believe cable may not exist by 2025. Therefore, this is minimum 7X growth if this occurs. However, there will also be some share taken from mobile because CTV first-party publishers have data that competes with mobile on behavioral targeting. So, let’s say minimum 9X growth in front of us when/if cable no longer exists. That’s 7X today but I’m asserting a larger market share than Pay TV today as CTV ads compete with mobile on data.
While I’m on this point, let me reiterate why I like Magnite. Google and Facebook became mobile powerhouses because they leveraged their first-party data. This is exactly what Disney is doing with Magnite and Roku is doing with DataXu.
Feel free to choose whichever CTV first-party ad company positions you’d like to choose. In the past, I have pointed out trends that I’m bullish on and provided our picks (cloud last year was an example of a trend we were bullish on despite extreme red days). However, our readers made excellent gains in other picks, as well – with many cloud stocks to choose from. We have a limited portfolio and we can’t own every company in a space. Therefore, please remember that I am highlighting a strong trend where there will be many winners.
We are also comfortable taking on more risk with MGNI and FUBO as these two companies have messy financials coming out of the ad industry issues during covid (FB, GOOGL and TWTR had their worst quarter on record). We understand (and fully comprehend) this affected smaller companies and are forward-looking. Fubo was especially hard hit with the pause to live sports in Q2.
However, a case can be made for TTD which is perhaps safer. Feel free to chat about that on the forum as many of our subscribers own this stock and can lay out why they are bullish. On that note, feel free to bring up any stocks you think fit this trend for the mutual benefit of the group.
One reason I have been tracking the deprecation of the IDFA closely is that any weakness to mobile/Facebook/Google will be a tailwind to our positions with first-party data in CTV ads. Roku – and even Magnite with Disney data – could be the winners here as this change on mobile rolls out. I cover the IDFA here and also here. Please note, both Roku and Magnite run omnichannel ads but leverage CTV data for this.
For Roku, we will be watching for international expansion. If you’ve been with me for any length of time, I’ve never doubted Anthony Wood despite the many ups/downs this stock has taken (we’ve even held through two 60% drops!!).
For Magnite, we will be watching for this company to quietly move onto the market’s radar. I say quietly because if Magnite does what it’s proposing, then we haven’t seen anything yet in terms of stock price. We feel good about our supply-side thesis – all earnings calls with MGNI and ROKU agreed with our thesis – and we remain bullish. Please always follow Knox for sentiment-driven price movements.
For Fubo, we look to audience growth first and foremost. They must deliver here on a year-over-year basis. We think the story of watching live sports and socially betting is investable and we see a path here to follow in Sky Media’s footsteps but to be potentially much larger on a global basis. We also see limited downside now as the shorts have shown the world all of Fubo’s weaknesses (i.e. fully priced in) and the company went through 6X liquidity. Essentially, we understand Fubo has hurdles to clear but we remain long and will update you if this changes.
Bottom line, we are heavily weighted in this trend! There are many opportunities and we have laid out the ones we have in our portfolio. We look forward to more discussion on any other opportunities our readers have dug up or any opportunities David or myself discover.
When do you sell a stock that has performed well? The question of when to exit is equally as important as when to enter. These two could be tempting to sell because the story is so well known. However, I consider these two stocks to be opportunities that are hiding in plain sight.
We remain long Zoom Video for its historical product-market fit. We’ve never seen anything like this in tech – not with Apple, Google, Amazon, Facebook or Netflix. I understand the argument is that covid created unusual circumstances. Keep in mind, video conferencing was not without competitors. It’s a very crowded space – so, the question here is why Zoom Video instead of the various other apps? Citrix GoToMeeting, BlueJeans, Skype, MS Teams, Google Meets, etc.
This is what we mean by product-market fit – a product that overcomes all odds and sees breakthrough growth has met the demands of the market. You could say that perhaps every company with top-line growth has achieved this to some extent. However, when we see this kind of breakthrough it usually means there is something unique going on here at the product level.
We believe Zoom is preparing to do to cloud voice what it did to cloud video – and now email too. We are buckled in tight to see what arguably the best product design team of the decade can do to disrupt bigger markets in the productivity space.
However, please be aware that the market is unsure of how to price Zoom Video going forward. We’ve seen this in the nearly 40% pullback. As we navigate the uncertainty, we are willing to remain in the position even if there’s some kind of earnings issue (we don’t think there will be but want to clarify we are not fair-weathered as all tech companies eventually take a breather).
Shopify has a mission that makes perfect sense. We detailed why we were bullish on the merchant-side value proposition last year in our PDF. We are also bullish on the fulfillment center. I know it’s getting noisy with shiny-new IPOs and SPACs but we also don’t want to lose sight of what is tried and true.
I mentioned on the webinar that we think e-commerce could have a big Q4 with earnings because of the unprecedented amount of shopping that occurred. We’ve always liked SHOP and will remain long when the economy opens back up. About two weeks ago, we added BIGC to our momentum portfolio to see if Q4 comes in strong.
We also agree with Pinterest bulls (we’ve been a PINS investor in the past and written analysis since its IPO). We also agree with Square bulls (the one that got away from me last year!) – who doesn’t love Square’s SMS code for faster checkout? Many of our readers own these stocks and know them well so we look forward to hearing the community talk about these and others.
Unity and Snap:
We covered these two recently. Augmented reality and virtual reality are trends that we think will catch people off guard because AR/VR is seen as a hobbyist or gamer technology. What we find interesting here is not only the growth of the trend but how few beneficiaries there seems to be at the moment as to who can capitalize on the trend.
Unity’s lock-up period expires on March 17— look to Knox around this time. If we happen to trim, then we will add at a lower entry. Also, Unity has exposure to the IDFA … however, there’s a chance they overcome this as they have a concentrated group of gaming apps and this allows for category-level targeting for user acquisition, etcetera. We aren’t trading Unity based on IDFA weakness at this time but the risk is there. Management says it will not materially affect them and I’m hoping they also have a way to create publisher segments DSPs.
Teladoc and Amwell:
We haven’t budged on our telehealth thesis despite the market taking a breather. There’s only one way forward for health care — and AI should help accelerate both of these products. You can view the original thesis here on Telehealth. We continue to look for new opportunities in telehealth. Amwell is a choice of ours primarily based on Google and the synergy between Amwell and the AI data Google has.
Twilio:
I had covered Twilio at length recently in the Motley Fool podcast – we like the acquisition spree and pivot towards omnichannel marketing. This management team is super fun to watch because they are so visionary and developer-centric. They’re out to win! We think it’ll be the edge device market that catapults them, but in the near-term as the edge is being built out, the pivot towards being an omnichannel marketing/data company provides plenty of tailwinds.
This article was originally published on Forbes on Dec 31, 2020,11:45pm ESTForbes on Dec 31, 2020,11:45pm EST
Recently, FuboTV has been hit hard by short sellers. The criticism is based on FuboTV’s trailing financials and negative gross margins. We recommended FuboTV at $16 and have a blended cost basis of $20.10 and want to take this opportunity to connect a few dots on this company for anyone interested in hearing why we remain long.
Our analysis starts with audience growth because this is the predominant key metric in media. We also discuss the financials including the forward guidance. Lastly, we discuss why live sports OTT is a unique opportunity and why we think FuboTV is positioned well for free-to-play fantasy games and sports betting.
The main argument against FuboTV is the negative margins. This is a lagging argument as the company has laid out a path to increase monetization through sports betting. We are in a speculative period for this, however, we spell out a few key reasons we think the company can execute on this new path for monetization.
Key Metrics and Financials:
Fubo TV announced Q3 results on November 10th, the company’s first earnings report since its October IPO. Management described the quarter as the “strongest in company history.”
Revenues of $61.2 million increased 47% YoY on a pro forma basis, or +71% excluding 2019 licensing revenue from the FaceBank AG business, which was sold in July 2020.
Subscription revenue increased 64% YoY to $53.4 million, while advertising revenue increased 153% YoY to $7.5 million. Paid subscribers grew 58% YoY and totaled 455K at the end of the quarter, an acceleration from the 42% subscriber growth the company posted last quarter.
Fubo Press Release
Average Revenue per User (ARPU) increased 14% YoY to $67.70, while total content hours streamed by FuboTV users (paid and free trial) in the quarter increased 83% YoY to 133.3 million hours. Monthly active users (MAUs) watched 121 hours per month on average in the quarter, an increase of 20% YoY.
Operating margins were -145.9% and gross margins currently stand at -16%. This would be a concern if FuboTV had not outlined a new path for monetization (see below). Related expenses and sales & marketing expenses increased by 20% and 60% respectively in Fubo’s latest quarter.
Management noted that they use adjusted contribution margin to measure variable costs against subscriber revenue. In Q3, adjusted contribution margin was positive 16.1%, up from 0.5% in Q3 2019.
The company is expecting margin improvement over time, as discussed in its Q3 Shareholder Letter:
“We expect margin improvement to continue over time, aided by a number of initiatives. This includes the growth of advertising on our platform along with strong attachment rates on value-added services, such as cloud DVR storage and the ability to stream on multiple devices.”
The company also raised Q4 and FY guidance significantly. Management now expects Q4 revenues to be $80-85 million, a 51% to 60% increase YoY. They also expect to end Q4 with 500,000-510,000 paid subscribers, an increase of 58% to 62% YoY.
As a result, FY 2020 revenue is expected to increase 65% YoY to $246M. Most impressively, management is guiding for an acceleration of revenue growth in 2021 to 70% YoY, with total revenue reaching $415-435 million.
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FuboTV App Downloads and Sessions:
The short seller report from Kerrisdale Capital did not name the source of the app intelligence it was quoting. There is no reason to not name the source as app download and session data is factual and inherently unbiased. This is the first I’ve seen data referenced in any article or report without the source being named.
There are three main providers for app intelligence: Apptopia, AppAnnie and SensorTower. Apptopia has provided the following data showing that downloads are up for the quarter from 1.16M in Q3 2020 to 1.53M in Q4 2020.
Apptopia
According to Apptopia, FuboTV is up about 50% year-over-year on downloads from 1.001 million in Q4 2019 to 1.53 million in Q4 2020 and up about 70% in sessions from 84 million in Q4 2019 to 143.7 million in Q4 2020.
Apptopia
There is a dip in December when broken down monthly on downloads but sessions remain strong. This does not include a full month as the data was pulled through December 29th.
Apptopia
Despite downloads being lower on a monthly basis, we see sessions are higher in December than September. Downloads could also be affected by new subscribers joining for football at the start of the season, therefore, these fans already having the app downloaded. For this reason, sessions are important to cross-reference.
Apptopia
We think the dip in December downloads should recover with the start of the basketball and hockey season to create a new seasonal spike in downloads. The NFL Network is a competitor and has exclusive content while basketball does not.
SensorTower data does not raise any flags either although it appears the viewership is lumpy with more popularity on the weekends. In this picture, Fubo is green, Youtube is blue and Sling is red.
SENSORTOWER
FuboTV looks similar on the iPhone where weekends are more popular.
SENSORTOWER
Here’s more information regarding how FuboTV’s website traffic has recovered nicely since April when there were no live sports. We see no issues here. Notably, this does not include December.
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Live Sports:
Live sports is known as the “holy grail” because it’s the last stand for cable television. Loyalty to live sports is the primary reason as to why customers have not cut the cord with 81% of sports fans subscribing to pay-TV and 91% stating they subscribe to pay-TV for access to games. According to Pricewaterhouse Coopers, 82% of live sports fans have stated they would cut their subscription if they could access live sports elsewhere.
This is substantiated by the fact FuboTV – a relatively unknown name —- can command a high fee for its content of $65. This is three times more than Netflix. We are less concerned with the margins at this time and more interested with how Fubo has been able to compete with the largest MVPDs on price – Comcast, Charter, Hulu+ and YouTube — and most importantly, what the willingness to pay a high subscription fee could mean for free-to-play fantasy games and sports betting in the future.
Sports Betting:
FuboTV has stated they will first go into fantasy league free-to-play games and then move into sports betting. FaceBank is a company that is known for its animated digital humans, such as Tupac Shakur during Coachella. However, more importantly, the merger gives FuboTV access to the Facebank Group’s Nexway e-commerce and payment platform with a presence in 180 countries.
We think this payment platform will be useful for global sports wagering and will help FuboTV scale for sports wagering quickly.
fuboTV intends to continue its global expansion with FaceBank’s Nexway AG, a global ecommerce and payment platform with a business presence in 180 countries, accepting payments in roughly 140 currencies.
Please note: This article is updated to reflect that Nexway was sold and is no longer part of the merger with FuboTV, per a disclosure on November 16th. The tool that FuboTV will use to expand into fantasy games is Balto Sports, acquired in early December by FuboTV. Balto Sports is a graduate of Y Combinator, the incubator that has worked with many startups including Stripe and AirBnB in their early days. Balto Sports is co-founded by Joe Montana’s son and has the ability to become a sports book.
Over the past few years, Sky Media led investment rounds in FuboTV along with Fox for a 39% stake. This investment round was increased in late 2017/early 2018 with Sky Media holding Board positions. The former NBA commissioner was also part of the last $15 million round. Media has gone through some very big M&A shifts at the top-level with Comcast acquiring Sky and Disney acquiring 21st Century Fox. However, for FuboTV’s formative years, the company was influenced by arguably the top sports betting company in the world – Sky Media from the UK. The Comcast-owned Sky Media is still a backer for FuboTV along with Disney.
We think FuboTV is an excellent route for these more traditional media companies to have exposure for free-to-play games and sports wagering without involving their mainstream entities, like Hulu. Sports betting can be controversial and FuboTV allows the content to be funneled to another MVPD. We see the same thing happening with DraftKings – where Fox was a backer, and now through acquisition, Disney.
There are debates on who will dominate the free-to-play fantasy and wagering market in the United States but the successful model to replicate is nearly unanimous – which is Sky Media’s model. The company has numerous brands for betting and fantasy football (soccer) and is the largest betting organization in the UK by number of subscribers. Perhaps it is simply a coincidence that Sky Media has been the largest stakeholder in FuboTV along with Fox over the past few years — and now FuboTV is pursuing a similar monetization path as Sky Media – but we don’t think this is a coincidence. We like this synergy and the direct access Fubo has had to Sky in its formative years.
Analysts:
Perhaps the most compelling thing about the market’s reaction is how quickly short sellers with less of a track record were listened to over sell-side analysts who must maintain a high level of credibility. (In one case, the short seller has a #17,000 rank on TipRanks!)
If the company is going bankrupt soon, then the following analysts have produced the first goose egg in their careers.
BMO Capital (12/23):
BMO Capital Markets analyst Daniel Salmon downgrades from Outperform to Market Perform. The big move had taken the stock well north of his $33 price target, which is now lifted to $50. Salmon says FUBO offers "a more promising path to profitability than most new investors expect," but secular and execution tailwinds are already included at this valuation. His raised price target remains lower than last night's close, with Salmon saying the downside "is more a reflection of recent volatility than an incrementally negative view.
Wedbush (12/16):
Wedbush analyst Michael Pachter initiated coverage of FuboTV with an Outperform rating and $40 price target. The rating is initiated as the analyst expects cord-cutting and cord-shaving to continue for the foreseeable future, and thinks that a sizeable portion of the population will grow up as 'cord-nevers', preferring customized content.
Needham (12/22):
Needham boosts its rating on FUBO to Buy from Hold off the 2021 upside drivers it sees for the company. "We believe FUBO will continue to have strong upside momentum into 2021 owing to: a) FUBO is taking share from competitors; b) its Hisense partnership lowers SAC; c) upside from sports betting; d) OTT multiple expansion; e) short covering; and, f) CTV upside," sums up analyst Laura Marting on the bull case. Despite the huge runup in share price since fuboTV's debut in October, valuation is called inexpensive in comparison to OTT comparables.
Roth Capital (12/22):
FuboTV price target raised to $55 from $36.50 at Roth Capital. Analyst Darren Aftahi raised the firm's price target on FuboTV to $55 from $36.50 and keeps a Buy rating on the shares. Recent market research from Antenna suggests FuboTV gained share from larger virtual multichannel video programming distributors Hulu and YouTube TV in the months of October and November, growing 100 and 200 basis points, respectively, from September to 19% in November, Aftahi tells investors in a research note. While part of this gain can be attributed to seasonality around the launch of the football season in the United States, the overall market trend of cord-cutting, along with FuboTV's growth initiatives, should lead to a higher subscriber outlook for the first half of 2021, says the analyst. Aftahi says share gains, categorical growth, further implementation of artificial intelligence to aid acquisition and retention, and the rollout of an initial entree into sports betting expected in fiscal 2021 substantiate his "bullish thesis" on FuboTV.
Oppenheimer (12/7):
FuboTV price target raised to $30 from $21 at Oppenheimer. Oppenheimer analyst Jason Helfstein raised the firm's price target on FuboTV to $30 from $21 and keeps an Outperform rating on the shares after hosting meetings with the company's CEO and CFO. While management sounded confident in its ability to meet near-term targets for core subscription/advertising, the majority of investor focus was on the recent acquisition of Balto Sports, marking FuboTV's first move toward online sports betting, the analyst notes. While there are clear synergies between live sports content and OSB, Helfstein acknowledges that there are significant hurdles to enter this market. However, he is taking a first "stab" at sizing the OSB opportunity at $742M, assuming $295M in 2020 revenue based on a 16% attach rate and comparable margin structure to OSB leaders.
Is FuboTV the next Roku?
I was the first analyst to cover Roku at $30 and to discuss its story at length. While the market argued it was hardware; I detailed how it was an ad exchange and why that was important. This was before Roku reported any ad revenue in its fundamentals. Now, as you know, Roku has more ad revenue than hardware revenue and the market now “likes” Roku for Connected TV ads.
One argument I’ve continually made is that SVOD (subscription video on demand) is a mature market while AVOD (ad video on demand) is many years behind because Pay-TV advertisers had not migrated. This is why Roku was a developing story while Netflix is a mature story. The market has had a very challenging time understanding where Roku is in the hype cycle.
Of course, FuboTV is not like Roku because it is not an operating system or ad exchange. However, it’s important to know that FuboTV is in the most nascent area of OTT and the peak growth will be years behind Roku due to live sports being the last content type to convert to linear OTT.
Therefore, to require a perfect story and fundamentals right now in linear OTT for live sports is incredibly myopic. Investors will need to come back in two years to find a better fundamental story in linear OTT live sports — and they must be willing to have fewer gains for a surer thing. What short sellers are calling a dumpster fire is actually a market in its infancy. We are not dealing with just a general linear OTT channel. The product is live sports and this was the last to convert for cord cutters.
What Roku and FuboTV do have in common is solid subscriber growth and high ARPU. They’re also both continually under pressure from the market due to margins. Netflix, for that matter, has also been continually attacked for its free cash flow margin. We understand that licensing and distributing sports content has created an issue with margins but we also know that small companies with loyal audience can (and do) successfully pivot frequently.
Although we agree with the short sellers that the gross margins need improvement, that is the only thing we agree with them on. The rest of the reports were opinions that offered no citations on the data. The quotes and sources “from experts” were also unnamed. Finance is a regulated industry and we feel any data or interviews that cause people to lose money should be sourced.
Notably, the shorts had great timing. There was a run-up in price and an over-extension on the technicals and the reports came out during a period of low volume over the holidays (one report came out on Christmas Eve). The reports were also timed to the lock-up expiring. As far as timing goes, it was a perfect storm.
Regarding valuation, there are concerns about the number of shares that have become available which stands between 140 million, according to Oppenheimer. Keep in mind, DraftKings has a similar subscriber number in the 500,000 range and FuboTV makes similar revenue as DraftKings did in 2019 — yet DraftKings trades at a high valuation of 36 with a $18 billion valuation. If Fubo cracks sports betting on the same size audience (that is growing at and proven to already spend a sizable $65 for month for their content) then we think it could end up there.
Conclusion:
We believe the company will be successful in its pivot to a new monetization method as pivoting is something that nearly every small company does as they look for product-market fit. What matters for a pivot is the audience. This is the core strength to any media company and FuboTV’s key metrics are strong. If the audience continues to grow, then FuboTV has a high likelihood of delivering its new path of monetization which is free-to-play fantasy to maintain growth and reduce churn, and later, sports betting to increase revenue and improve margins. As stated above, sell-side analysts believe sports wagering could come as soon as fiscal 2021.
To conclude, we are long FuboTV and our thesis is not changed at this time.
Last week, we discussed why live sports OTT presented a unique opportunity for FuboTV and why we think it is positioned well for free-to-play fantasy games and sports betting.
Fubo TV announced Q3 results on November 10th, the company’s first earnings report since its October IPO. Management described the quarter as the “strongest in company history.”
Revenues of $61.2 million increased 47% YoY on a pro forma basis, or +71% excluding 2019 licensing revenue from the FaceBank AG business, which was sold in July 2020.
Subscription revenue increased 64% YoY to $53.4 million, while advertising revenue increased 153% YoY to $7.5 million. Paid subscribers grew 58% YoY and totaled 455K at the end of the quarter, an acceleration from the 42% subscriber growth the company posted last quarter.
Average Revenue per User (ARPU) increased 14% YoY to $67.70, while total content hours streamed by FuboTV users (paid and free trial) in the quarter increased 83% YoY to 133.3 million hours. Monthly active users (MAUs) watched 121 hours per month on average in the quarter, an increase of 20% YoY.
Furthermore, the company also raised Q4 and FY guidance significantly. Management now expects Q4 revenues to be $80-85 million, a 51% to 60% increase YoY. They also expect to end Q4 with 500,000-510,000 paid subscribers, an increase of 58% to 62% YoY.
As a result, FY 2020 revenue is expected to increase 65% YoY to $246M. Most impressively, management is guiding for an acceleration of revenue growth in 2021 to 70% YoY, with total revenue reaching $415-435 million.
All in all, we believe the company will be successful in its pivot to a new monetization method as pivoting is something that nearly every small company does as they look for product-market fit. What matters for a pivot is the audience. This is the core strength to any media company and FuboTV’s key metrics are strong. If the audience continues to grow, then FuboTV has a high likelihood of delivering its new path of monetization which is free-to-play fantasy to maintain growth and reduce churn, and later, sports betting to increase revenue and improve margins.
XBI is the ETF that tracks the S&P Biotechnology Select Index. This ETF is equal weighted and distributed amongst small, medium and large cap companies. It’s one that I use as a proxy for the biotech industry.
Relatively speaking, this sector performed poorly over the last 3 weeks.
That being said, any attempt to buy biotech right now would be a countertrend move, which comes with risks. Stocks in motion tend to stay in motion; however, there is evidence that we could be approaching a bottom, which could provide an opportunity.
Note how XBI is finding support at the $139-$141 price region. This is a heavy confluence of important prices. Furthermore, the RSI, CCI, and Accumulation/Distribution lines are all diverging, suggesting that the selling pressure is fading.
The Accumulation/Distribution line implies that smart money is beginning to buy at these levels. This is further backed by the volume patterns declining into the correction, implying that the sellers are drying up. Also, note the two large green volume spikes. These are signs you look for when looking for a potential bottom.
Two Biotech Stocks we like
Please note, we have looked at these stocks fundamentally but will lean heavier on technicals for Biotech as the space is complicated and requires domain knowledge to trade purely on fundamentals.
Sarepta Therapeutics (SRPT)
SRPT is setting up for a nice breakout above the $180-$185 region. The targets on this move will be the $425-$570 region if confirmed. Also, there are several levels in play which need to be monitored.
The $167-$176 region signals a breakout for the large base formed since it topped in June of 2018. Also, note the ascending inverse head and shoulder pattern that is also at play (in green). Price failed to breakout from the neckline around $180-$182. Since then, we are seeing a retest of the $167 region.
I’d look for a buy at the lower trend channel on any weakness, which is implying support between $128 – $135, depending on how fast it gets tested on any weakness. If we do not see this caliber of correction, we will be looking for a breakout buy on this position.
Sangamo Therapeutics (SGMO)
SGMO is setting for a multi-year breakout. The chart appears to be tracking a leading diagonal pattern, which is overlapping, with sharp moves, yet trending up since 2003.
I believe that we are in the final 5th wave of this leading diagonal pattern, which can take us well into 2021, if confirmed and held. We will be playing the $19.25 breakout on this move.
