fuboTV Inc. (FUBO) Earnings Call Transcript & Summary

Okay. Welcome, everyone. I'm Bryan Kraft. I cover the media sector and telecom, cable sectors at Deutsche Bank. Pleased to be here this afternoon with David Gandler, the CEO and Co-Founder of fuboTV; and Simone Nardi, the CFO of the company. Gentlemen, thanks for joining us today. It's a pleasure to sit down and chat with you for a little bit.

Yes. No, thank you for having us.

Thank you.

Why don't we start off? I mean fuboTV has been growing subscribers faster than the virtual MVPD -- than other virtual MVPDs in the industry broadly. You seem to expect that trend to continue based on your '21 guidance. What's made you successful in the marketplace to date? And how do you differentiate fuboTV from competitive virtual MVPD services?

Yes. So we've done a good job positioning the company as a sports-first cable TV replacement service. And customers are obviously taking us on our offer. And you can see that, Q3, we had a very strong quarter where we added about 11% of net additions in the virtual space. And then, in Q4, despite a price hike, we ended up netting about 8 -- or just over 18% of net additions. So we differentiate from our content bundle. We have the largest college football package in the United States with all the college conferences. We also differentiate on the product side. We're still the only ones that do sports in 4k. We've got a multiview and a DVR that allows you to record games in perpetuity. So if you want to build your own library of your greatest moments, you can do that. And last but not least, we still have the largest RSN package virtually with NESN and MSG, AT&T Southwest in Houston and in Pittsburgh. So that's sort of the first layer of differentiation. And just given the fact that we continue to add subs or added subs in the fourth quarter, you can see the value that sports has for us and our ability to grow given the headwinds that other groups have faced.

And you mentioned the content strategy a little bit there. I guess one of the questions I had is, for a long time, you didn't carry ESPN, now you do. You've dropped the Diamond Sports RSNs. What's the approach to deciding what to add, drop, keep on the platform? And what led to these specific decisions on ESPN and Diamond?

Yes. Well, as you know, we're a smaller company. We were a privately held company, competing with the likes of $1 trillion companies and $100 billion companies that have deep pockets. And so we were unable to have the bundle that we wanted to have while we were private. And so we've been very measured and disciplined about our growth strategy and our content strategy. And we leverage data every day. In every decision across the organization, all of our teams leverage all the data that we have access to, which is roughly about 20 billion data points that we're collecting at the moment. And you can see our use of data actually worked out quite well when we made the move to ESPN and sort of allowing our Turner deal to expire. That has worked really well for us in the third and fourth quarter. And given where we provided guidance in the first quarter, we obviously feel good about our decisions because our -- if you think about 2020 versus 2019, we lost about 10% of our sub base, Q4 to Q1, seasonally. And sort of the guidance that we provided this year is for about a 5% decrease sequentially. So again, we feel that we're managing our seasonality well and leveraging the data to be able to improve, not only expand our subscriber base, but also expand our margins on a year-over-year basis.

If I could just follow up on that quickly. You mentioned Turner. Can you, I mean, have a full sports package without March Madness? Is there potential for TNT and TBS coming back? I mean how are you thinking about that?

Yes. There's always potential. I mean we're optimizing our bundles all the time. I think I've said even before we had ESPN, we would love to have every content provider because the more you have, the better. But there is a reality that this is supposed to be a relatively skinnier bundle. And so you can't have everything, but you can certainly optimize around what you need and the type of customer we have. 96% of our users watch sports, so it allows us to amortize sports content in ways that other services can't given the more of a general entertainment-type audience that they have. So again, we're having discussions all the time, and hopefully, there's an opportunity to bring them back at some point.

Okay. You're boldly planning to launch your own Sportsbook, and you've announced the acquisition of Vigtory to that end. What led to your determination that entering sports betting was a better option than partnering with an existing player already in the business, like DISH and DraftKings just announced? And what's the broad strategy there?

Yes. So well, first of all, I think that when we made our announcement of our desire to be in the space, I think there were many who said, "Well, that doesn't make any sense. You can't combine the 2." And so the DISH-DraftKings deal validates what I've been saying, that this is a possibility and one that I think we're very comfortable with. The real reason for this is because even in a deal like DISH and DraftKings, you really can't create a seamless experience. You can't share data. You have -- know your customer data that -- on the wagering side, and you have video data. And that -- those 2 are mutually exclusive. And by having the license in these markets allows us to leverage that data. So even if we decided not to put some product integrations together, just the fact that we're able to push data already allows us to provide a better experience. So for instance, if you're watching a Lakers game on fubo, we can already push you a bet slip before even opening your app right to that Lakers game or potentially to a play that you wanted to bet on. So again, I feel like that's a more immersive experience even without having the product integrations. The reason why we thought this was compelling is, one, there -- well, I should say, there are crossover synergies across our whole ecosystem, meaning we have the data synergy, which I just mentioned, is the #1 most important synergy. You have engagement and retention synergies. You also have marketing and monetization synergies. And so having an additional recurring revenue stream with a significant gross margin, anywhere between 50% and 60%, made a lot of sense to us. Moreover, as we continue to differentiate our video service from other video services, this is yet another component that allows us to significantly differentiate. So there are many, many reasons to do that. And lastly, there are barriers to entry to owning both, which puts us in a very, very unique position. Even after this recent announcement that you just mentioned, I feel like we're actually much further along now that I sort of understand what's happening.

You mentioned, I think, a little bit the advantage that you may have versus other platforms. But I -- still, when you look at the field of online sports betting competitors, it's pretty crowded, and there's a lot of investment going in there. How do you think that you can come out successful given that competitive backdrop? And will you be targeting only your subscriber base? Or will you go outside of it? And can you actually scale this platform? And do you need to scale it? How big do you need to get?

Yes. So on the first part of your question, we are already a company that has been competing with some very large players, okay? YouTube TV, that's a $1 trillion company or more; DIRECTV NOW, which is part of a $200 -- $150 billion to $250 billion company; and PlayStation Vue, as you know, which is part of Sony, $80 billion company. So what we've done over the last 3 years is, in 2018, we went from 1% market share in the virtual MVPD space. In 2019, we went to about 3% market share and then finishing off 2020 with about just over 5% of market share. So competing with large companies is sort of something we do, and we have a solid track record of competing successfully. No one said we needed to be #1. Remember, we have video and we have our potential opportunity around wagering. The average customer has about 4 sportsbooks on their smartphone. So could we reasonably be the fourth or fifth given our differentiation? I think that's quite possible. And remember, football customers spend about 7 hours per day on the platform. So for us, this becomes more of a flywheel opportunity, an opportunity to use wagering to draw top of the funnel into video, and it's also an opportunity for us to drive from video to our betting product. And at the end of the day, it's all about ARPU. And given where we are today at around, I think 754 was for 2020, our goal is to continue to drive that annual ARPU higher across advertising, subscription and other revenue streams such as wagering. So I'm actually quite bullish on this opportunity. It's a differentiated opportunity. And we're going to use the same playbook. We are very measured, very disciplined. And you can see that by the acquisition that we made. It was an acquisition that we felt was just small enough, with a very solid team that allows us to kind of work quickly with regulators. And you saw us announce the Caesars Entertainment deal very quickly on the back heels of Iowa. So -- and we're already talking to regulators about our plans for 2021. And we've also pulled forward timing. I mean we were talking about a sportsbook back in -- last year, about 2022 first quarter. And then I think we said on one of our calls that end of December was a likely scenario. And then I think on our most recent earnings call, we said Q4, which implies probably sooner than end of December. So again, we feel good about what we've done, and we're going to use the same playbook as it relates to developing our business in a very measured and disciplined way.

Aside from the direct revenue and margin that comes from people placing bets, how do you expect this to translate into higher revenue and profit for fubo over time?

Yes. So one very important concept here is advertising and first-party data. Being able to -- again, here's another reason why that data is important is it's one thing to have third-party data that says this person could be a male, could be in his 40s or 50s. It's another thing to say, I know with certainty that this discrete identification number is a male and who's 40 years old. And that you get because as you know, there's a KYC process, so you have to match the ID or the person on an anonymized basis with a lot of the different characteristics that regulators require. So I think it actually helps our advertising business just from a data perspective. It also allows us to better engage and retain customers, which will add to more viewing hours, which should also allow us to better monetize through advertising. So again, to me, this is a very, very compelling flywheel.

Let's talk about engagement for a minute. Can you talk about what you're seeing as far as engagement among your subscribers and how that's trended over time?

Yes. Look, when we started this service in 2015, the average customer was watching about 10 hours a week, which, if you think about it, makes sense because they watch one -- their favorite team. Their favorite team plays once a week. So you get 2.5 to 3 hours out of them, and that's it. Today, we're building an ecosystem, an ecosystem where, in the last quarter, people watched about 127 hours. And we continue to see an uptick back going into the first quarter. So to us, this is really about creating an ecosystem where you're learning more and more about your users and your users are becoming more and more emotionally attached. And we're making life easy for them. So it really gives us a broader opportunity to add more revenue streams, of which wagering and advertising, which is 2, but I do foresee us continuing to add more capabilities into the platform, such as commerce capabilities, as an example.

And can you talk about churn a little bit? I don't know if you can give us any sense as to where your churn rate is, how it differs among different cohorts within the base, how customer tenure impacts churn. I would love to just hear anything you could share there.

Yes. So churn continues to improve. You see that with the amount of engagement on the platform. If you look at the latest ANTENNA report on virtual MVPDs, I think they had us actually ahead of all of the competition in terms of second month churn. And we actually see that flowing through our 12-month churn, where that's up significantly. We mentioned on our Q3 call that we saw retention improvement year-over-year roughly around 68 basis points, and we saw another improvement year-over-year in the fourth quarter of 56 basis points. So I think as the cohorts mature, you're going to continue to see improvements on churn. What's also really impressive, I think, is that we've added almost half of our sub base in the back half of 2020. So you would anticipate significant churn just because your first month's cohort is so large. And first month's cohort typically has the largest level of churn, and that over time, your decay curve kind of improves. So we feel very good about our retention numbers. We think they will continue to improve. And our long-term retention outlook has also shifted. We were looking at something closer to 5% to 7% long term. And as of a few weeks ago, we're revising our numbers to 3% to 5% long term. 3% is something that you see in very mature streaming services that are 15 to 20 years old or more. And then the 5%, which is sort of the top end of that range, is more for like mobile providers that have services that are not contract-based. So those are in the 5% range. So we're feeling really good about our churn numbers, and that continues to improve even into the first quarter.

How did the price increase to $65 last year impact your churn? And has that churn impact, to the extent there was one, fully normalized yet?

Well, I mean, again, for me, fourth quarter is a great data point. We increased our package price to $65, similar to other competitors. And we ended up adding more than 3x our net adds from the prior year. So in our world where sports is sort of the key to our platform, again, this is another reason why I believe we are differentiated versus than what's often stated that we're not, but in the fourth quarter, we saw, I would say, performance that was closer to a betting company than a virtual or a traditional MVPD, where the more the games went on, we saw more and more engagement, more and more subscribers. So I think that, for the foreseeable future, this is a trend that we'll be able to maintain. And sports fans clearly have a need for sports content. And clearly, price is not really affecting that view, and it's just not fungible. So you're sort of -- if you like sports, you like the NFL or you like the Red Sox, you like the Yankees or whatever it is that you like out there, you can't just say, "You know what, I'm going to replace that with some other viewing." And so that is -- has really played into our strategy. And clearly, it's working for us and not for everybody.

How do you envision handling price increases in the future? I mean do you think that they're going to become annual occurrences for you in order to keep up with the inflation in programming contracts? Or do you think you will be trying to stagger them a bit more so that it's on an annual thing?

Well, again, you saw the success we had in the fourth quarter. I do believe we have more pricing power. And in my opinion, the pricing or the packaging is really relative to what's being charged in the traditional space, right? If you have 70 million customers paying $120 or in some satellite services, where it can go $160, $170, clearly, there's room for us to be able to price up. That's not to say that we will, but we do have that optionality. And we've been the first to price up, I think, every year in the last 3 years. And as you see in our quarterly results, it really hasn't had much of an impact.

Can you talk about the advertising side of the business a bit? Ad ARPU grew 54%, I think, last year. I'm sure part of that was political, but still a strong result. Can you talk about what's driving that growth as far as price, volume, improvements in targeting or the way you're selling, et cetera?

So it's a good point you bring up. In the third quarter, I think a lot of folks felt that political played an important role in our 7 -- I think it was $7.60 or so in advertising ARPU. But as we provided our fourth quarter numbers, that number grew significantly to $8.47. So we were able to quickly replace political. And what's interesting is we got to $8.50 on a base of, call it, 550,000. So you're going to continue to see, as we increase our subs, you will see a step function in our CPMs. And there's really 3 levers that we can leverage to continue to expand our ad ARPU. And that's, one, is just the number of hours of people watching; CPMs, which are still in the low 20s, and there's significant room even if we -- to get to Roku, CPMs can have a material impact on our ad ARPU from where we are today; and then there's the fill rate. So all 3 of those have sufficient room for us to continue to grow. And so I think we remain very bullish on our opportunity around advertising.

Okay. Are there other significant innovations on your product road map that could help further differentiate fuboTV? And if so, can you talk a little bit about that and where you see that going?

Yes. So we've reorganized our teams to focus more on product. I think for the first couple of years, it was all focused on engineering and making sure the platform can handle a significant amount of users, building out our video technology. Now we're more focused on product. The wagering acquisition of Vigtory, I think that was important. And then our acquisition of Balto. So we're planning to launch free predictive games on the video platform. Those could launch nationally, allowing us to continue to A/B test and learn about conversion rates and how we plan to sort of add wagering into the video platform. So that's an area of focus for us from a product perspective, which allows us to further differentiate from our competitors, both now in the gaming and in the video space. But yes, product features are important. And we'll continue to focus on discovery on the platform to surface the most relevant content. We'll also look to surface the right events and games. We're focused on just improving the service altogether and developing in a way that allows us to continue to iterate. So product focus is central going forward.

Okay. The bears on your stock argue that pressure from content cost inflation, combined with broader pay TV industry sub declines, really limit the opportunity for fubo to grow. What do you say in response to that? And what is it that you think they're missing?

Yes. So I think, generally speaking, investors often misunderstand evolving companies. And this is a clear case where recent events make me feel even more comfortable and more bullish than when we were on our roadshow. I disagree with that. I mean you have 75 million-or-so people in the ecosystem that will eventually look for a better experience or better pricing or both. And I really don't see why the decline in pay TV, traditional pay TV, has a very specific impact on us. We continue to grow at a very fast clip. We continue to raise prices at a fast clip. We have an audience that is statistically significant, so we can see the amount of people watching live television. It's a good 90% of people. And they're watching it on connected devices. And the number of hours people are watching, it's 7.2 hours per day. I don't think that there are going to be many D2C services out there. I don't care how big their libraries are to be able to demonstrate those kind of numbers. So I'm extremely bullish. I also believe D2C services, all the pluses out there, are going to have to continue to raise prices. And eventually, what will happen is aggregated services are going to look much better, which provide profiles, more innovation, better surfacing of content and giving people a more broader bundle. I think what we've learned over time is people prefer more content rather than less content. And that's not to say that's for everybody, but I do feel very comfortable that even at the current pace, I think, we took in out of the 1.35 million customers that left the traditional ecosystem, we took in about 6.5%, 6.8% of subscribers. So if you think about extrapolating further, and let's just say the virtual space is 40 million or 50 million customers, even if we don't improve from here, it's still a pretty significant number. So I'm very bullish on it. I think, ultimately, this is the right model for media companies, particularly if you think about the cost of NFL. And the increase of NFL pricing and the impact is going to be quite strong, which I think will force full distribution of that content. So from my perspective, I think these bundles have proven to be successful, and I anticipate that they will continue to take more and more share over time.

You have a couple of betas running in Spain and Canada. Can you talk more about your international strategy and what the growth opportunity is that you see there?