fuboTV Inc. (FUBO) Earnings Call Transcript & Summary

Good morning, everyone. For those that don't know me, I'm Grant Joslin, Doug's lead associate for telecom names. I am so pleased to introduce our next speaker, fuboTV co-Founder and CEO, David Gandler. David, thanks for being here.

Thank you. Thank you for having me.

So I've got a list of questions here, but if anyone in the audience has any questions, you can e-mail me at grant.joslin@credit-suisse.com, which shows you on the screen. So I think the first topic on many of our minds is COVID and its impact on how we do everything from work to entertainment. Has COVID shifted your view of fuboTV's prospects? Has it permanently accelerated or increased the opportunities for the company?

Yes, absolutely. We consider ourselves a sports-first cable replacement product with a strategy that brings people in for the sports and keeps them on the platform for the entertainment. We've seen, obviously, as many others in the industry, a massive increase in viewership, anywhere between 80% and 100% in April and May. So it's a massive move, which really suggests the value that this type of services provide. The breadth of content is unbelievable. Obviously, sports viewing was nonexistent during those months, but we have seen a major spike across all of the genres.

Interesting. So -- and what are things looking like today now that the impact, I think, across the industry to viewing is moderating a little bit, but on the other hand, we're getting a little bit closer to maybe some live sports coming back, hopefully?

Yes. No, so we saw some green shoots in April around the NFL draft as well as the start of the Bundesliga, which were very positive. Then the last weekend with LaLiga, we saw some of the highest levels of reactivations we've seen in the last 18 months. So clearly, there's pent-up demand particularly going into the fall sports season. So teams on our side are continuing to work on the technology, video quality, product features and additional upsells around sports.

Okay. We saw your shareholder letter for the end of last year but are you able to give a subscriber update today? And with social distancing rules beginning to be relaxed, how do you think things can evolve from this point?

Yes. So we'll be providing subscriber numbers at the end of the quarter. What I would say is that we've managed the situation quite well. As you know, we're known for our sports. I think what COVID has provided for us is to demonstrate that we have additional content. We have over 20,000 VOD assets of some of the best programming in the world. I think that was something that folks really know us for and have had an opportunity to really test the service. And we've seen that with a significant improvement in retention, which our major concern going into COVID was, will we be able to maintain subscriber levels, given that the reason why most folks sign up for FUBO is just for the sports? So we're very confident going into the fall sports season.

Terrific. And so retention or churn is half of the subscriber story. What about any increase or decrease in the pace of gross adds that you're seeing?

Yes. Well, as I said before, our strategy is come for the sports, stay for the entertainment, so it was very difficult to come for the sports when there are no sports on. So typically, we don't spend marketing dollars during periods where there are no sporting events. So we've been very light, as I'm sure you've seen with many of the other services as well. They've been pretty quiet over the last few months. But teams are gearing up for the fall, and we think that generally for the industry, it should be a pretty robust season.

Okay. So I think since the time of our last conference and especially through the first half of this year, it's been a really fluid time in the virtual MVPD space, with PlayStation Vue shuttering and Disney taking full operational control of Hulu, some challenges at the satellite company, the MVPDs and a real acceleration for YouTube TV. So when you kind of look across your sort of competitive set, how do you think you're positioned with respect to them and with the traditional MVPDs?

Yes. So the first thing I would say is we're at the very bottom of the S curve. I mean, people have really focused on -- consumers have focused on individual streaming services for the last decade or so. I think when you look at the value that we, as an industry, as a group brings to the table, you'll see that on a cost per hour basis relative to the retail price, you're starting to see the value that we're actually providing customers. FUBO, just to give you an example, last year, averaged about $1 per hour in terms of cost to the customer. This year, it was closer to $0.40, $0.42. And now during COVID, it was south of $0.40. So when I look at that versus sort of the gold standard, which is Netflix, which is roughly in the $0.20 range per hour, I'm starting to get very comfortable that having the breadth of content that we have today over time will create enough value for not only single users but for entire families. So when we look at our peer group, I think we like to distinguish between competitors and peers. Competitors are Comcast, Charter, Altice, Fios and AT&T viewers. It's the 84 million households that have cable today. As you know, one of the main reasons why people would consider cutting the cord over the next 12 months would, first and foremost, be price. I think once we get through all of the pricing, the next stage will be experience. And so as competitors, we're really focused on satellite and the cable guys. And when we look at peers, I can't say that all virtual MVPDs are created equal. We're heavily over-indexed in sports viewing. So there's only really 2 other services that have the breadth of sports. Well, probably one other service, as you know, YouTube TV, which has a significant sports offering. I would say that as sort of our main peer, if you will. But again, we're not chasing cord nevers and cord cutters, which are a small portion of the market relative to the 84 million households that still pay for cable television.

Yes. So when it comes to how you're positioned with respect to your peers, what's next on the product development road map? Or what do you think that you can offer to more differentiate the service compared to something like YouTube TV?

So look, I mean we are differentiated. We have a -- 30% of our content is unique to our platform, not what I see unique to our platform relative to YouTube TV. Everybody's got -- which creates some customer headaches where everyone has different packages, unlike with traditional cable, where if you decide to leave Charter and go to Fios, you don't ask yourself, do these services have sustained bundles? You know that every channel is available on every cable or satellite or telco out there. In our space, I think customers have to do a little bit more work, which is a bit painful. That's why I believe that over the long haul, you'll see that people start to subscribe more to these larger bundles. So I think we're headed back to where we effectively started. The bigger bundles will, I believe, will ultimately win. And again, it comes from really 2 things. One is the efficiency of having 1 app that has phenomenal content from all of its partners. The effectiveness of having a bundle where you don't have to go in and out of different apps, where the technology starts to create significant value. Our machine learning recommendations engines have driven viewership hours in '18 -- January 2019, which is around 50 hours a month to the end of this year, the end of 2019, about 125 hours a month. And through COVID, that's an additional 20%, 25% per month. So the machine starts to sort of work and really provide people with access to more content. We've seen that. And just in the number of channels viewed, we've gone from a mere 10 channels per month to almost 19 channels per month in April. So again, discoverability is a key area. But from a content perspective, again, we over-index the sports channels. I think that one of the major complaints from distributors is the cost of sports and the pressure it creates on the bundle. That is not something that we are as worried about. We have started our service at $6.99 in 2015 when we launched and are now at $54.99, so almost a 10x increase in price, yet we've managed to kind of improve our retention and grow our sub count. So I would say that you'll see us continue to optimize our bundle for sports. We do have RSN networks that others don't have and a number of other sports channels that they're not carried. From a product perspective, I think we've also done a relatively good job. We're still the only ones to carry 4K for live sporting events. We were planning pre COVID to stream about 120 sporting events in 4K. Obviously, that number has been cut down significantly. We'll see if it makes sense to continue to do that into the fall. But we've been a leader in sort of sports products. Our navigation is developed for sports viewing. We have multi-view on some of our devices. And so we'll continue to look for ways to enhance a sports fan's ability to experience the service.

Okay. Now you mentioned the sort of consumer sticker price earlier. But I think investors are curious on the economics of the virtual MVPD business a little bit more broadly. So we can all see the retail pricing of all of the vMVPDs out there but could you take us through your other revenue streams?

Yes, sure. So the margin build, I would say it's -- I would say, firstly, it's sort of like a Roku in the sense that the hardware is the hook. They get people into the platform, into the ecosystem. And then from there, it's sort of the ad revenue that starts to sort of play the profitability game for them. I think in our case, it's very similar. We have a base pack of content. That includes typically 100-plus television channels with one of the largest sports packages in that base. It includes a free 30-hour DVR as well as 2 streams that come along with that service. And from that perspective, we're -- long term, we're looking to be breakeven in that basic bundle. On top of that, we sell a combination of sports packages that include things like Red Zone and international sports leagues, MLB.TV, NHL.TV, et cetera. Then we also sell premium channels like Showtime, AMC Premiere. And then beyond that, we sell services, which is a key component of our margin expansion, which are charged services like DVR, we have a 500-hour DVR. By the way, we are the only ones that have a perpetual DVR. So if you were to record your -- the Women's World Cup Final and you wanted to see -- watch that over and over for the next 4 years, you'd have that opportunity. And so the content add-ons or attachments that we sell, they range anywhere between 20% and 60% gross margin. And then on the services side, because it's all cloud-based, margins are anywhere between 95% and 100%. So you can really see how that develops. Then layered on top of that is as we get you to watch more hours, as I said, the strategy is come for the sports, stay for the entertainment. Once we hook you, you watch a sporting event, we get you to watch the news, favorite a channel, DVR something, and those hours start to move to 145, you start seeing a nice run-up of advertising revenue or ad ARPU, which I'm very excited to say it's balanced back in a V shape from April to May. So we finished May with about $5.20 per subscriber. So you can get a sense of how much more there is to do on the ad side as we continue to grow. Now one might argue that, what is the possible maximum number of hours that people can watch? I don't know what that number is. What I can tell you is that the average household per Nielsen watches about 300 hours. So we're in the, call it, 120, 140 range and we'll have to see post COVID where those numbers land against -- across the industry. The point is we'd probably be somewhere between 120 and 300, depending on how well the technology is able to sort of drive continued viewership and discovery across the platform.

On the advertising side, is there anything you need to build out for the sort of advanced advertising or ad tech opportunity? Or do you think that you've kind of got everything that your partners are looking for today?