Please note, this is a Forbes article to be published Monday morning.
Fubo reports Q2 earnings on Tuesday, August 10th, which is a seasonally low quarter for live sports in North America. According to data from Apptopia, the company had a slower start to the quarter in terms of sequential downloads and DAUs, yet the traffic picked up considerably in the back half of the quarter. This is good news as management raised guidance for both the quarter and the year on May 11th and the app data downloads and DAUs support a strong June.
The I/O Fund has written on Fubo in prior quarters to make the point that live sports is an especially coveted audience in media. Our contention is that as long as Fubo can continue to grow its audience with demonstrable key metrics, the market will eventually acquiesce and reward the stock. Below, we revisit these key points and why Q2’s strength in June is important to our thesis.
Our Thesis on FuboTV
First and foremost, we see live sports OTT as an investable trend as the live sports audience is the most coveted audience across media. According to a March 2021 press release, Fubo offers “42 of the top 50 Nielsen-ranked networks across sports, news and entertainment channels” plus more than 30,000 movies and TV shows on-demand. The company also has the exclusive rights to the South American Qatar World Cup 2022. In this case, the rights to Thursday night football being owned by Amazon pales in comparison to the 3.5 billion soccer fans globally that Fubo can capture with the World Cup. With live sports, investors must think big — including beyond the sports teams they personally watch.
We think investors who are overly concerned with the high and low season of sports is missing the bigger picture as to the potential Fubo has demonstrated in capturing this audience. The NBA playoffs likely increased viewership for Fubo in June. Fubo offered options for the Olympics, such as NBC, USA Network and the Olympic Channel. On that note, we see evidence in the app download data presented below that July continued to be strong, likely from the Tokyo Olympics.
Despite Fubo being centered in an important trend, the company’s negative gross margins are certainly a blemish in the financial reports. Our investment thesis allows Fubo time to execute on the product road map to improve its margins through sports betting. We covered this in-depth in our first Forbes article on Fubo when we maintained that by combining live sports viewership with free-to-play, and later sports betting, that Fubo will be in much better financial shape over time. In fact, we think the cross-sell between the programming and the betting will be key to Fubo taking a leadership position as more states open up betting.
On that point, we think DraftKings is the weaker of the two stocks as the company’s bottom line is worse than Fubo’s. It’s true that both companies have to figure out user acquisition; Fubo has chosen programming while DraftKings has chosen growth marketing. Wall Street has mistakenly priced DraftKings to be stronger because their line item for these costs is further down the income statement, when in fact, DraftKings spends more than Fubo for their audience and has worse operating margins. In this is (indeed) a market oversight, then there’s quite a bit of room in Fubo’s valuation.
Fubo’s earnings report will provide a better understanding of when the free-to-play and betting app will launch. The last earnings report indicated the app could be available as soon as Q4. We see some indication that Fubo is preparing for a successful launch, such as the market access agreement with Cordish Companies to open up sports betting for Fubo in Pennsylvania.
Review of Q2 Numbers
Despite the short seller reports that were published in December, Fubo has become one of the strongest tech companies post-Covid in terms of reporting blowout earnings in both Q4 2020 and Q1 2021. On May 11th, the company went on to report 105% year-over-year growth and 8% sequential growth for 590,430 MAUs with subscription revenue increasing 131% YoY to $107.1M. Net subscriber additions were approximately 43,000 versus a loss of 28,000 in the same quarter last year, which the company achieved while reducing sales and marketing as a percentage of revenue. Monthly ARPU increased 28% year-over-year and advertising ARPU was up 57%. Paid and trial users streamed more than 228 million hours, up 113% YoY. MAUs on average watched 129 hours per month, up 8% YoY.
This led to the company increasing its end-of-year subscriber guide to 830k – 850k, up 53% YoY at the midpoint and an increase from the prior guide of a 40% YoY rise.
The I/O Fund uses app data primarily to see if a company is trending up or down. We do not use app data to predict exact numbers. Please also note, Fubo reports audience size in terms of “Subscribers” while Apptopia tracks “DAUs” or “daily active users” and “Downloads.” Therefore, Apptopia provides an important glimpse as to the direction of Fubo’s growth trend, however, we are not making an earnings call on number of Subscribers.
As shown in the Chart below, Fubo’s DAUs were higher in June than in May, likely due to the NBA playoffs. Notably, Fubo’s DAUs continued to grow into July and August as a result of the Olympics, supporting the firm’s strong growth projections. With the NFL football season on the horizon, we would expect steady growth in year-over-year DAUs to continue into Q3 and Q4 2021.
Source: Apptopia
According to Q2 data from Apptopia, Fubo’s download growth accelerated 235% YoY to 1.25 million downloads during Q2 2021, well above our initial calculation for Q2 published in Forbes of a 181% YoY growth rate back on May 12th, which at the time only included data from 46% of the Q2 quarter.
It is great to see that Fubo’s downloads accelerated in the back half of Q2 2021. The chart below illustrates how FUBO’s daily downloads have been trending up since the end of Q2 and into Q3. Unsurprisingly, DAU growth followed the growth in downloads, increasing 182% YoY (more on this below).
Source: Apptopia
Source: Apptopia
As shown in the chart above, Fubo will likely report a sequential decline in downloads in Q2, however, Q2 has historically been a weaker quarter for user growth due to the seasonality of sporting events. This assumption is supported by 2019 (pre-COVID) data, as Q2 2019 downloads also fell on a sequential basis. Importantly, Q2 2021 downloads only declined 8% QoQ, which is well above the Q2 2019 (pre-pandemic) sequential decline of 37%.
Daily active user (DAU) growth has followed a similar trend as downloads. Back in May, we had initially anticipated a 172% YOY growth rate in DAU by extrapolating Apptopia data. With more complete data on the quarter from Apptopia, we anticipate that DAU growth accelerated in the back half of the year, growing an estimated 182% YOY.
Source: Apptopia
Notably, Apptopia’s data shows a roughly 8% sequential decline while Fubo is guiding for slight sequential 2% growth. Apptopia does not track Roku numbers and this may be partly why there is a 10% gap. Roku owns 1/3 of the Connected TV market in the United States. The main takeaway from the data is that Fubo ended the quarter strong and performed well after management raised guidance. This is what we want to see from Fubo – growth year-over-year despite being a seasonally low quarter.
Therefore, we see the trend is up and this is the most pertinent takeaway. As noted, the expectation is not that these will be identical numbers between what Apptopia provides (DAU and Downloads) and Fubo’s Key Metric (Subscribers). Rather, we are using the app data going into earnings similar to checking a person’s vital signs. We like what we see, particularly in the June quarter, as Fubo continues to clear hurdles.
What if Fubo has a slight miss? We will remain with our position as we don’t expect perfection as this stage in tech growth. Instead, we are looking for exactly that (growth) and we see evidence for growth in Q2 and this growth continued into the first month of Q3.
As stated in the article, Beth Kindig and I/O Fund currently own shares of FUBO. This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.
Please note: The I/O Fund does not make earnings calls and we do not "play earnings." There are many things that can be reported to shake a stock beyond user growth. Gross margins, EPS miss, etc, will not be reflected by user growth alone. We pull data to reduce risk in positions we already own. We then share that information with our readers. Please consult your personal financial advisor before buying any stock.