fuboTV Inc. (FUBO) Earnings Call Transcript & Summary

All right. So welcome, everyone. Really pleased to introduce David Gandler, who is the Co-Founder and CEO of fuboTV. David, welcome.

Thank you. Thank you for having me.

Why don't we jump into it? So fuboTV has been growing subscribers faster than the other virtual MVPDs and the industry broadly. You seem to expect that trend to continue based on your subscriber guidance. What has made you so successful in the marketplace to date? And how do you differentiate fuboTV from competitors' virtual MVPD services?

Yes. So fubo sits at the intersection of 3 megatrends. The first obviously is the secular decline of traditional television. The second is the shift of [ TBI ] dollars to connected devices. And the third is online sports betting. And I mentioned that because we have positioned ourselves in the virtual space as a sports-first cable replacement service. And so there are, I would say, 3 vectors on which that has resulted in the type of growth that we've seen. And by the way, that growth is about 3x the virtual MVPD space, which is pretty impressive. So the first vector, obviously, is on the brand side. We have positioned ourselves as a sports platform, whereas I would say, Hulu, Sling, YouTube TV and others are more general entertainment platforms despite the fact that they have a significant overlap in sports. So if you're familiar with the cable space, I would consider it more like if you think of old school DIRECTV, whereas if you liked college football, you would say, "I need to get the DIRECTV package. Meanwhile you could have gotten any other satellite service. So I would say on the brand side is #1. The second piece is on the product side. We've spent a lot of time developing our product, which, by the way, for the first time in fourth quarter, we had the highest NPS score of any of the virtual MVPDs. Again that's not easy when you're competing with a company like Google. And so from a product perspective, we built out features like sports calendar views and one of our top features is like a multi-view, where you can watch multiple games concurrently. And then we've built out predictive games and we're the first to launch 4K for sporting events. So that's on the product side. And then on the content side, we also have been doubling down on more expensive sports content as some of the audience may know, we have the largest portfolio of regional sports networks. So those are the vectors in which I think that we've been able to differentiate.

And can you talk a little bit about the content strategy for a long time, you didn't carry ESPN, now you do. But you've dropped the Diamond Sports, RSNs and Turner. What's the approach to deciding what to add and what to keep and drop? What led to these specific decisions on ESPN and Diamond and Turner?

So fubo collects over 20 billion data points per month. And the company is extremely data focused. And so when we look at content partners, we look across acquisition, engagement metrics for that piece of content, retention rates and monetization. And based on the data, we've taken a bold move, as you said. I think we're the first pay-TV platform ever to drop a major media partner and still not only grow, but grow at a very impressive rate. So we're very confident in the data decisions that we make, but that continues to be part of the calculus. Now what also happens in that case is that as we look at that data, remember the data, we're updating data all the time. So we'll typically try to optimize that bundle going forward. So you didn't see ESPN, as you said, we added ESPN, removed Turner. The key is that everybody wants to be on the platform, particularly as you scale over 1 million customers. The money is just too good to pass up.

When we spoke about a year ago, you had just acquired Vigtory as part of your launching your own Sportsbook. Can you remind us what led to the determination that entering sports betting was a better option than partnering with an existing player already in that business? And can you talk about how the Vigtory acquisition and strategy has played out so far?

Yes. So as I said, we positioned ourselves as a sports-first platform. So part of that is creating a more immersive experience and making -- moving people from being just passive viewers to more, I would say, active participants. And that's sort of the macro that you're seeing across everything. People are in metaverses and gaming. And all of these trends really speak to the fact that people want, again, a more immersive experience. So bringing gaming into the fold seemed like a very good idea at the time. And we now believe, now that we've launched 2 very small states, we're doing a lot of testing, but the crossover rate of people who have our subscription product and a gaming app have shown 2 very important things. The first trend is; one, they're making more bets than someone who just had a Sportsbook. Again all of this is just directional at the moment because we've only been live for about 50 days or so. And then the second is they've retained better, at least in month 1 than someone who just came in to test the book. So I'm very bullish on the opportunities around gaming because if you think about it, fubo has over 1 million customers today. And I'll just use DraftKings as an example, but they have 2 million customers. And they've been pulling from their fantasy into their Sportsbook. We have a base that is 96% of our users watch sports and 90% watch live. So when I take a game like the Super Bowl, concurrently, we had about 810,000 people. And again, that's not the total number of people who watch the Super Bowl. That is on a per second concurrency level of 810,000. So think about the macro there. You have almost half of a DraftKings base, watching a game, and if you can just get them or put up something that says, bet $5, bet $10, bet on your favorite player. Just think about how immersive that is, number one. And number 2 is, think about the ability to reduce the cost of entry, right, and create very attractive user economics. So from our perspective, we now have 10 market access deals. We're going to continue to expand that, and we'll try and align the market access deals to our subscriber markets and with the goal of ultimately creating a national platform. But all of this is really about creating flywheel because as you add gaming, what's really happening is; one, acquisition costs are down because you're leveraging your TV subscriber base. The second thing is you have more engagement. When you have more engagement, that means people are watching more ads and you can drive more ad revenue. Number 3, you retain customers better because you have a very unique product. There is nobody in TV today that is attempting to do, and we're already making strides in that, to do what we're doing. And the gaming companies cannot become media companies. And if you're sitting there saying, well, how can that be? Very simple. NFL deals are up in 2034, the Olympics, the World Cup, March Madness, all of this, all the major sporting events are up in 2030 plus. So we're in a very unique position with very high barriers to entry with a captive audience watching 130 hours. So for me, this really allows us to expand our -- expand our ARPU and improve unit economics.

Are you only targeting your subscriber base? And if so, can you get to a level of sufficient scale in sports betting just in your base?

Yes. Well, our CFO, John Janedis, is with me here today. We were just talking about this. We just ran an exercise internally where if -- I don't want to give away numbers, but for us to break even on the gaming side, we actually need a very low number of players to participate because there's really no acquisition cost for us. So we think that there's a good opportunity for us to really sort of develop this business. But again, think of it as like a mini-Amazon ecosystem, right? You have somebody like almost like a Prime in the sense that they're buying goods on e-commerce, they're watching video. So in our case, it's really a factor of 3. You have the subscriber business, which is just subscribing to our television platform. Number 2 is the ad business, and this will be sort of that third adjacency, which we think really complements the product and allows us to further differentiate from that competitive set.

Is -- could you put any more numbers around how you expect it to translate into higher ARPU and revenue and profit over time?

So I believe we've already announced that we're planning an Investor Day sometime, call it midyear this year. I would say that it will not be as large as the advertising opportunity. But certainly it will add to the profitability of the overall business.

Okay. That's helpful. What are you seeing in terms of engagement among your subscribers? And how has that trended over time?

Yes. So engagement, obviously, at peak COVID, we were seeing something like 146 hours per customer. If you think about Netflix as being the gold standard, I think Netflix is in the 45 to 50 hours a month range. So it just goes to show you how important live TV is. And again, this is not on a base of 50,000 customers. We're talking 1 million. But obviously with the more people watching more news, we're seeing the trend to be around 130. So relative to 2019, even 2020, ours are certainly up.

Okay. How about churn? Can you give us a rough sense of where your churn rate is? How difference, difference, among cohorts.

We're very happy with our churn numbers. So from a retention perspective, retention improved, well, it's been improving every quarter, I think, now for 11 straight quarters. But fourth quarter, I think retention improved by about 296 basis points. More impressive than that, when you look at month 6 retention, we've seen a significant lift in the decay curve, upwards of 650 basis points. So again, but that talks to product improvements, platform proliferation, content optimization and really starting to develop a brand around sports.

How do you envision handling price increases in the future? Are they likely to become annual events in order to keep up with programming cost increases? Or are you going to try to maybe stagger those a bit more?

So I mean, some of you may know, when we started this business recently in 2015, where the service was only $6.99. Fast forward, 6.5 years later, and it's at the base of $65. So I think we have done a good job understanding our customer base, raising prices, at the same time lowering churn, increasing subscribers. This year, we did not raise -- we usually do an annual price increase. I think this September, I believe we have not. But obviously that's something that we optimize based on data that's coming in. But obviously there will be price increases.

Okay. Can you talk about the advertising side of the business a bit, and ARPU grew 18% last year. I'm sure part of that was political, but still quite strong. What's driving the growth? Is it price, volume, improvements in the way you're targeting or moving out inventory? Is it adding new advertisers? And maybe talk about where you think that ARPU can go over time for advertising?

Yes. So advertising is a key component of our business. It is the profit driver of fubo. I think it's all of the above. We have been growing our ad business by about -- from a revenue perspective, about 90% to 100% year-over-year. And if you think about the cost of sale on that, it's probably about 2.5%. So highly profitable business for us. Right now, our CPMs are in the $21 range. So CPM is up about 4% year-over-year. There is significant room to grow that. As we look at our custom segments and we're starting to build out ad tech, this has not been an area of focus for us because we're so focused on building a product that people like. But now it is. And so there's an opportunity for us to focus on CPM growth, fill rates. And obviously, just as you scale, there's step function in being able to charge. But just to give you guys an idea, if you look at broadcast rates on a DMA basis for NFL, those rates, Miami, I've seen rates of $110, New York $70, San Francisco, Boston $90. Again, I'm not saying those are the rates, but we're at a $21 average CPM. So somewhere between 21 and 100 is where we're going to land. And you can kind of build your models out, how you wish. But my sense is that long-term ARPU still looks to be $15 to $20. Now if you look at -- and again, I don't know if this is still the case, but the last time I looked at Comcast business, which is the traditional pay-TV platform, I think they're averaging about $10 of ARPU per customer. So with addressability, with targeting, with our ability to -- and by the way, gaming plays into that because there's a KYC process that you have to go through. So we're going to have a really robust set of data that we can couple with custom segments that are brought to us by our advertisers. So that, to me, is really compelling. And when you think about the average customer demographically, you're talking about, we're skewing heavily male. And even in the virtual space where you see a lot -- customers are much younger, we actually skew younger than any of the virtual MVPDs, roughly around 42 years of age. So if you think about the highly coveted male, 18 to 49, that's sort of our sweet spot.

Interesting. Okay. Are there other significant innovations on the product road map that you think could help to differentiate fuboTV? And can you talk about those?

Yes. I mean we have really focused on product. We've added a fan view. So first, we started with multi-view. We've added fan view, which allows you to squeeze the video, put an L-Bar up. It shows you data for players, games. You can see -- there's all kinds of data that we're working on. We've acquired a company called Edisn.ai out of India that specializes in computer vision, which is really foundational technology to allow at a frame rate level to understand what's happening on screen. So -- and that's going to lead to things like having time lines, being able to create personalized, highlight reels. So we're well on our way to doing that. I think the most recent rollout is going to be a [indiscernible] game that is free. Again, we want to do a few things that we want to identify who will play so that we can target them later for our gaming product. But it's also to gamify the experience, right, and create that differentiation. This is an area that we're focused on. I think if you look at the competitive set, they're really interested in selling the video, getting the fee and selling some ads, and we're trying to take it well beyond that.

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

In my opinion, they're missing a lot, probably everything.

Probably might say that.

Yes. But that's my view. Look, content costs, the increase in content or the rising costs are not specific to fubo.