fuboTV Inc. (FUBO) Earnings Call Transcript & Summary

Good morning and thank you for joining us. I'm joined here by David Gandler, who's the CEO of fubo, and we're going to do Q&A. If you want to ask a question, put it in as soon as possible because there's about a 5-minute delay between when you enter your question and when I see it on my screen.

So we're going to start with David, big news of the day, $50 billion new company, $15 billion of it streaming, Discovery run by, I think, the best operator currently working in the business, which is David Zaslav. They're saying $15 billion of EBITDA and $8 billion of free cash flow. So sort of 2 questions or two layers. One, how does this big mega merger affect fubo directly and its competitive set? And second, going up to 30,000 feet, how do you think this changes the dynamic of industry design and industry structure at maturity for the streaming space?

Great questions, Laura. I don't think that it affects us in a significant way. As you know, we don't carry Turner at the moment. We have been in discussions with them. But I don't foresee a material impact in either direction. I mean we have demonstrated that we know our audience very well, and we know the content that our audience watches. And as you've seen in Q1, we had a very strong quarter. We were able to improve our churn by over 100 basis points. And obviously, we added 43,000 net additions versus the prior quarter and over 100% year-over-year. So no real impact. The 30,000 view, I think that what it really shows, at least in my view, is that bundles matter. You just never have enough content. And this is why I do believe that aggregation is the future of media. People want more and more content, not less content. And if the tendency was towards skinnier content or just lifestyle, then a deal like this wouldn't need to happen. But clearly, people want sports, they want lifestyle. They want reality TV and they want their movies and other forms of content. So I'm a huge believer in aggregation. I think this bodes well for us over the long term.

Okay. So let's stay on content. Let's like about the NFL. One of the things that we talked about on your earnings call was that it's the consensus view that the NFL granting so many streaming rights was bad for the linear TV bundle, and you guys are a skinny bundle. So -- and I think it is your view that it is the NFL 10-year deal is good for fubo, not bad. So let's walk through that again as to why the NFL's new structure for the 10-year deals are good for fubo, and not bad.

Yes. So first of all, what it does is it allows the Street and investors to know that it's not a looming question of, will you have the NFL or will you not? It is part of the broadcast deals. Each broadcaster will maintain Sunday -- whether if it's CBS on the AFC side, Fox has the NFC, NBC will continue to have that Sunday Night game, which is the marquee game. Thursday will be on Amazon, Thursday historically has never been a strong game for fubo. It never retained very well. So we're very happy with the package that is available. The strength of this -- the situation is that all of these networks have just a slice of the content. And I believe most consumers will want to have one package where they can get all of those games. And so I don't believe that it makes more sense for a customer to have each of the individual streaming services over 1 streaming services that will carry all of those games, including all of the college football, right? So most people who follow NFL also follow college football. So again, I think that this is a really important piece of news for our customers. It's an important piece of news for the Street. It allows them to better understand kind of where we are. I think the NFL is really the only media content that has the type of audience pull or aggregation that we're accustomed to seeing. And as you know, we didn't have Turner. So March Madness didn't have the type of impact that most people had believed would occur, fubo would lose subscribers in the first quarter. So with the NFL, we're very happy. We think this is an important deal. Some may also argue that, yes, but with more streaming, you're going to lose customers. That is not the case. Everyone should know that all of the broadcasters over the last 5 years have been simulcasting the Super Bowl. And everybody has had a very strong Super Bowl over the last few years. CBS, I believe, simulcast it last year -- or I should say this year. And it's been simulcast in the past by NBC and Fox. And we've never actually had to deal with a Super Bowl that wasn't strong. So I believe that we've already gone through simulcast, and I do believe that people will prefer one customized and personalized experience where they can get the best viewing experience.

Okay. All right. That's super helpful. Let's talk about your subscriber growth and the fact you're taking market share within the virtual MVPD universe. So I know you talk about their 76 million linear TV [ comps ], and a lot of those are going to transition to skinnier bundles. But more interestingly is you guys are now at 590,000 subs, which is up 300,000 subs year-over-year, and you're taking share faster and other virtual MVPDs are losing share. So can you talk about what fubo is doing better so that it's taking share within the virtual MVPD universe?

Yes. Sure. So we positioned ourselves as a sports-first cable TV replacement service. I think the argument is, yes, but everyone has similar sports bundles. We've actually -- are attempting to really live that, right, and really sort of allow that to follow through from everything, from our brand positioning to the types of content bundles that we have and all the way through to the product, right, which you can say you're a sports-first service but you still have to sort of demonstrate that value to the customer. We have improved our customization and personalization capabilities. You can choose your favorite teams; you have a calendar view. You've got multi view on Apple TV. We're still the only ones that do 4K. So we're still continuing to develop our product in ways that allows us to differentiate under this concept of, fubo is sports-first. And that has been working quite well. You saw it work in Q4. You see it in Q1 again. And we believe our customers are less elastic than you see from the other virtuals. They have -- it seems to me that they all have more general entertainment customers, and we are actually getting a greater share of the sports customer. And because they're not as susceptible to price changes. In fact, many of our customers are saying as long as you keep adding more, we don't mind paying. And so we continue -- we've been adding regional sports networks, which is another area that's very expensive that many of our competitors have shied away from. But overall, I think people are starting to understand that we are developing a platform for sports fans.

One of the things you've said in the past is that you start with content, but you end with products.

Yes.

I think one of the things you probably believe is that churn is falling because you guys are doing more customization and personalization. So maybe you could give the audience some examples about what you're doing to make your site a better sports-first product for that audience?

Yes. Well, first, we continue to invest in data. And we are highlighting games that people like. We're highlighting games that people may like. We are also focusing in -- right now, we're building out our free-to-play games. I'm very excited those will go out in beta sometime in mid-June, maybe early June. And we've acquired the CONMEBOL, South American World Cup qualifier rights. So that's going to give us a chance to really test some more product capabilities. But we had the big 10 games in 4K. We've had other games in 4K. We've had the Thursday Night Football in 4K. So we're continuing to try and develop a product that we think sports fans will gravitate to. Our Apple TV, if you talk to a lot of sports fans, they'll say it's an amazing platform. Obviously, we can't do that on all of our platforms because they're just not, they don't have the processing power, some just don't have the operating systems that can handle the type of things that we're doing. But we've been very focused on product, and you'll see from the free-to-play games that we're developing that -- and also, the machine learning that goes behind that, the algorithms that are required to help us figure out how to leverage the data. But we're doing a lot on the product side. And I think we're doing more so for consumers that are viewing sports than others have. And we're going to continue to do that, and our job is to emulate the success of a Spotify or Netflix, and that has really been accomplished through their product development.

Well, and let's stay with pricing on this subject because you guys have been doing some really interesting stuff with pricing experiments, and that's been aiding your ARPU, your ARPU has been coming up. So let's talk about that, staying on the core business for a second. Let's talk about what you've been doing on the pricing side and what's working and what your learnings are?

Yes. So I always stress this on every call. We are very focused on our ability to manage our data and to analyze and leverage that data in ways that will allow us to find new opportunities. And what we typically do is we experiment around everything. That includes pricing. We've been experimenting around packaging. And you'll note that we ended up increasing our attach rates from 1.0 to 2.1 year-over-year. That means we've sold in roughly about 1.2 million, just over 1.2 million attachments per month on a base of 590,000. So we're starting to see attachment growth improvements. And we're also testing regional sports network pricing, zone pricing. So we're doing lots of different things to test what works and sort of where we think the customer will allow us more flexibility. And that also includes -- and some of the ARPU you're talking about was really because we were able to maintain higher attachment rates in Q1 than we have previously, right? Because typically, what will happen is once you get through the fourth quarter of the year, people will drop Red Zone, right, because the NFL season is over. So we've been really sort of tinkering with our packaging strategy, adding in Red Zone with other strong sports content to see if we can mitigate some of the drops that you see post the sports season. So a lot of these tests will continue. Some are working better than others, but we're getting a lot of learnings out of them. And that's adding to all of the top line KPIs that we've reported: better churn, you're seeing better conversion rates in the funnel. You're -- which are really a function of better onboarding, better, faster discoverability that we're able to sort of surface the content that people want to watch sooner than we have in the past. So all of these things in combination are leading to very strong deliverables.

Staying with the core business, your SAC. I know normally -- which is your subscriber acquisition cost -- normally, your targets are 1x to 1.5x a single month of revenue. Which round numbers is $65 is your -- a single month of revenue. And I know you said on the earnings call that your -- that SAC number came in below the low end. So can you talk about what's been -- why is your subscriber acquisition cost falling? What are you doing better? Can you talk about that? Because that's a key component to the return on investment [Technical Difficulty] [ cobof loris ].

For sure, for sure. So that's a -- there's a combination of seasonality and performance. And in Q4, you're going to spend more because everybody is spending more. CPGs are spending more, autos are spending heavily in Q4, e-commerce is spending, telcos, et cetera. So there is going to be -- that's why we keep it as a range. The other thing is we have been raising prices for many years. I think we've raised prices every year since $6.99 where we started 5 years ago. And so that's why we have to keep it sort of in a range. But this year, we did come in under that range. And again, it's just like for the other segments of our business, is that we're just getting better with the data. One area that we really haven't hit on is TV advertising, because we can't figure out the right algorithms to get us to come in even within that range yet. So that's why we've been slow to kind of really drive growth. We want to do it very efficiently or as efficiently as possible. But the teams are, again, leveraging, and this is part of the choices we make in our content, like what is the first view or what content provides the first view, right, or watching what piece of content initially, what would -- what type of churn dynamics does that lead to, or retention dynamics. So the teams are looking at all of this data on a regular basis, I would say daily. And again, I think over time, we're just going to continue to improve on all of these metrics.

Is anyone paid in your organization to lower churn or lower subscriber acquisition costs? What are the metrics that your operating guys are paid on?

Yes. So the way we run our team is everybody is paid on the same metrics. There's no -- we don't want to create a situation where -- because if you just -- if you isolate any one of these things, if you isolate churn, then one manager might be incentivized to give a 50% discount, which then wouldn't help your ARPU situation. So we meet as a management team regularly. We're constantly reviewing the model, and we all have the same KPIs. Everybody's got the same set of KPIs. And we -- the way we provide those KPIs is we always give them targets that have a midpoint across all of them. So you can only win if you hit all of them. You can't win if you hit one. So that's why you'll see us not -- there were comments in the past that, oh, but you're not growing as quickly. These guys have millions of subs. Then I always said, look, this is a marathon, it is not a sprint. And so can you grow in a way that's effective and efficient over time. And I think finally, we're starting to see that proven out in our numbers. And you rightly pointed out, our -- in 2019, we were roughly around 3% market share of virtual MVPDs. As of the end of the first quarter, we are closer to 5.8%. And again, I think that, that will continue to accelerate as we continue to improve on operating our business based on the data that we're collecting.

And what are the top 3 KPIs that your managers all aim towards, that they have to [ meet ] as midpoints? Is it sub growth? Is it EBITDA? What are those KPIs?

It's sub growth right now. It's contribution margin and it's ad sales. Those are the 3 big ones. Obviously, each manager has another subset of those, but those are the ones that are driving our business. And as you know, advertising is a key component of profitability. That is now 11% of total revenue, which is kind of helping us expand our contribution margin. So we're all very focused, but you also started your comments with the Time Warner deal. And you just never know. You see the dynamics in our business are changing so quickly. This is what I've also said. I think I even said it on our call, is that we are very reactive, but in real time. So I feel that we've created enough optionality, and we're in a very good place, and we're very excited because our Q1 numbers are so strong. It really sets the stage for Q2 and into the strength, which will be Q3 and Q4 of this year. So super exciting times.

So let's move to advertising. I've got lots of questions on that because that's my [Technical Difficulty [ top spot ] for advertising. So 1Q advertising growth was 206% to basically $13 million with ARPU of $7.11 and that is ARPU per quarter, right? Whereas...

No, it's monthly. It's monthly.

Okay. So you're doing $70 a year, $80, actually and Roku is doing $35 a year because theirs is trailing 12 months. So you're already doing like 3x Roku's ARPU. But in part it's because you have higher [ income ] ad like units to sell. So you're still on target to double your advertising revenue in 2021. I think you've said that.

Yes.

And just to share with the audience questions you already answered on the call, you're selling 93% programmatic, $20 average CPM, about 55%, 60% fill rates. So let's talk about like, what are you doing better? How do you feel about that 93% programmatic? Pros and cons of direct sales versus programmatic? I'm interested in your thoughts.

Yes. Well, that's a lot to unpack. First of all, thank you for mentioning that we are doing roughly $70 per year. I think most people don't understand because I think Roku provides a trailing 12-month number. So thank you for that. It is a pretty significant number. If you think about the size of our base, I think the bear case is, well, your subscale, so you'll never have a large advertising business. I think that has been disproven at $7.11, again, in the first quarter, which is typically the weakest quarter in the advertising business. The only thing that could impact our ad ARPU for it to actually come down, is if we actually grow at a much faster pace. So initially, that growth, the adds have to catch up. So that's the only scenario, which would not be a bad scenario, by the way, if that happened. In terms of CPMs, again, I'm very bullish at 20 -- roughly $20 and Roku CPMs, I've heard, keep me honest here, in the $30 to $35 range. So just if nothing was to improve in just our CPMs to 50%, 55%, you're looking at a significantly higher double-digit ad ARPU. So that's exciting. The -- on the programmatic side, I think we will always be more programmatic because it makes sense, right, having fewer people involved in the process, I think, is better. I think where we are going to use the direct sales team is to continue to highlight the value of our audience and our data capabilities. And also, in connection with our new studio is to drive the CPMs higher, right? Because we can create custom capabilities around athletes and sports through the lens of these athletes, that we think are going to be extremely valuable for our advertisers. And we're seeing that because we're retaining advertisers better, and we're seeing budgets come in at higher levels. So -- but programmatic, I think, is the key. I think even if when -- if our direct business starts to pick up, we'll still look to siphon off the media components of direct into programmatic, and we call that premium programmatic. So that's still going to be a core part of our strategy, and that will allow us to maximize our margins within our advertising revenue, which are today, high 90s, almost 100%.

I just want to make -- I want to make sure I'm seeing questions, because the last time I interviewed David I had like 450 questions, and now I'm showing none. So I just want to make sure I'm seeing all the questions, and if you do have a question, type it into the box under David's and my picture. And I'm happy to ask you but keeping going because I got lots of questions I can ask you, David. So it sounds like you have a big focus on ad. It sounds like it's going to stay primarily programmatic. Can you talk about studio and how you think that aids your CPM elevations?

Yes. So advertisers are always looking to cut through the noise and experience greater mind share. And us being able to provide something that we think is valuable to our audience --and again, I say that through the lens of a professional or former athlete -- I think is going to resonate very well, both with our customers and with our advertisers. So that studio is a way for us to sort of provide more of a 360 approach for advertisers and give them that extra edge over another competitor that they might have that may not be able to speak to our customer base the same way. And I think what's important is that we are heavily male-oriented. And as you know, it's very difficult to reach men 18 to 49. And this is an area where I think we're going to continue to improve, which is why the gaming component of our business is also so important, which we believe we'll continue to engage males 18 to 49 and sort of increase that base.

Well, let's stay on that for a second. So my understanding of your viewer is it's different than like the Roku Studio, certainly, everybody is doing studios, [ it's the hot new black ] it is -- you're going to actually take athletes and put them together with advertisers, and then you're going to use your ad units to actually surface those ads? Do I have that right? They don't have to be 15 or 30 seconds, they could be a minute, 1.5 minutes. Do I have that right?

Well, we won't go as high as 1.5 minutes, but we will create custom capabilities. We have shows like the 1 with Agent 0, Gilbert Arenas, which we just renewed. We did something with him and Lexus. So we'll look to sort of add some more flair into these campaigns. And we did something with Lexus a year ago with around 4K, where we had a whole 4K schedule for them. And a lot of them are very happy with this. They want to differentiate from their competitors. And we're going to look for this as a way, instead of to charge them for production, we're just going to charge a higher CPM. And that, we think, is going to bring the floor up, make it more competitive for even those that are not interested in having that production layer done, but they're just going to have to pay the freight. We're also in the process of completing our header bidding capabilities, which, as you know, is an important way to also drive CPM. So we're right now very bullish on our current growth rate around programmatic. We have the studio, that should help us continue to drive rate. That could be 4, 5, 6 months out. And then beyond that, of course, as you know, and you've mentioned many times is, will we have a self-service platform? That's something that I don't believe is critical today, just given all the growth that we're seeing. But I do believe it's an important capability 18 to 24 months out, as you start to see maybe a plateau, if you start to get to those, the CPM layers -- levels earlier.

Yes. Okay. Let's move to wagering, brought that up briefly. So let's move to wagering. I think what I get, the question I get the most is, why is your mass drop better than what DraftKings is doing with DISH, [ where paying ] through a JV structure. Why is Roku owning both wagering and the digital television product with consumer relationships. Why is that a higher value-added equation from an investor's point of view?

Well, I think it boils down to 1 word, product. People want an immersive experience. And the only way to give them an immersive experience is to take that data and put all the data from the video and the betting app, all under 1 analytics platform. That is really the key component of all of this. If you do not have the information from what people are watching and the information on what they're playing, it's very difficult to create the right experience. And so for us, the first layer of that is to be able to create that link between the video and the game. So just to give you an example, let's say you're watching -- I just gave this example recently, but -- let's say you're watching Madison Square Garden Network and you're watching the Rangers. And you get, now because fubo knows that you have the fubo Sportsbook on your mobile app, and you're watching the video, it can put -- it can send you a push notification right to your phone and open the bet slip to the Rangers immediately. That's just a very simple task, right? Then you change the channel to the New York Knicks game. And then all of a sudden, you have a refresh on your betting app, and that changes to a Knicks bet slip. That's sort of very simple stuff here. Now where this stuff gets really compelling, is that if we know there's a cohort of users watching the Golden State Warriors game, and these people, because we see their betting history, have always bet on free throws, then we might be able to connect the 2 and say, here is a bespoke market for you to play against, right? And then you'll have widgets on your TV where you can access data, all related to what you're actually doing and what you care about. And the video is also customized because we know your favorite teams, we know what you're watching. So I think that this creates a very immersive experience out of the gate. And then the next thing it does is it allows us to do what we're doing today with our video product, which is continuing to develop that over time to really create this unified experience. And so again, going back to what you and I just discussed around video, it's all about product. We think we have, are well advanced in this process. And I don't believe anybody today, to the best of my knowledge, has a product that can connect the 2 sooner than we will be able to do that. And so our teams are working with regulators at the moment as well as internally trying to get that connection approved because that is really the key.

So this all feels very -- like all that customization feels very 3 years from now to me. If I just think about the next 12 months, and let's start with the first day of the third quarter. What happens first? I assume you get this free app; you have the free app in, then you have the wagering [ book ], the Sportsbook app out in the fourth quarter. In the next 6 months, like, do you have anything integrated with the television set itself? Or is it identical to DraftKings and DISH where they're...