FuboTV: Q3 2021 Earnings Preview And Why Short Sellers Are Running On Borrowed Time

Summary

• Q3 earnings preview. What investors need to watch.
• Why another record-breaking quarter looks to be in the cards.
• A look at recent company announcements/highlights and why shares are a no-brainer at current levels.
• Institutional ownership continues to climb and why short sellers are running on borrowed time.

simpson33/iStock via Getty Images

Earnings season is upon us with fuboTV (NYSE:FUBO) - the leading sports-first live TV streaming platform - set to release its third quarter financial results after the U.S. market closes on Nov. 9. The conference call/video webinar will take place at 5:30 p.m. ET with CEO David Gandler and CFO Simone Nardi answering analyst and shareholder questions. Investors can submit questions in advance to [e-mail] with the email subject "Q3 2021 Earnings."

For those that are new to FUBO, we've been bullish on the company since the IPO this time last year and have written several articles which you can read here and here.

In our latest article "fuboTV Q2 2021 Earnings Preview + The Vizio Partnership And Why Shorts Are Playing With Fire" we wrote why shorts were playing with fire and why another blowout quarter looked to be in the works.

This came to fruition as we predicted that revenue would come in at $130M and subscribers would be 650K+. Analyst expectations were lower, with expectations of $121M in revenue and 610K subscribers.

Sure enough, our estimates were right on the money as revenues came in at $130.9M, with subscribers coming in at 681K. As expected, shares soared on the news, jumping as high as 30% at one point as shorts covered their positions. Unfortunately for longs, those gains evaporated as the company announced that it was putting part of its mixed shelf offering ($500M) to use. This combined with overall weakness in the market at the time, put the company's share price back to where it was in June and July, despite a plethora of positive news and major announcements since that time.

Shares have continued to stay in a tight range as the stock price has bounced between $24-30 the last two months. With institutional support rising combined with recent announcements and more catalysts to come, we believe it's just a matter of time before shares break out and test all-time highs.

Q3 Earnings: What Wall Street Expects

• Revenue: $143.3M ($143.6M Earnings Whisper)
• Earnings Per Share: -$0.63 (-$0.65 Earnings Whisper)

FUBO Earnings	Q2 2021	Q1 2021	Q4 2020	Q3 2020
Revenues	$130.9M	$119.7M	$105.1M	$61.2M
Analyst Estimates	$121.2M	$103.8M	$96.5M	$54.2M
Earnings Per Share	-$0.37	-$0.55	-$2.29	-$1.65
Analyst Estimates	-$0.50	-$0.47	-$0.66	-$0.47

Click to enlarge

Since its IPO last October, FUBO has beaten revenue expectations by an average of $10.3M or 11.3% on the top line. This quarter, Wall Street predicts revenues will come around $143.5 million, up from $61.2M this time last year. This would represent year-over-year growth of 135%, which is just remarkable considering the company is trading at just 4X 2022 revenues ($920 million).

At the same time, the staggering top-line numbers haven't translated over to the bottom line just yet, but the company is making improvements. It also helps that advertising and average revenue per user ("ARPU") continues to soar, combined with the sportsbook launch before the end of the year. The addition of the sportsbook, once fully rolled out, should provide a major boost on the bottom line which will help speed up profitability.

It's important to remember that the sports streaming company was founded in 2015 and is still in its early stages. The vast majority of startups/high-growth companies aren't profitable in the early going and profitability shouldn't be top of mind for investors right now. It's all about revenue and user growth and the company continues to deliver. Profitability will come later down the line as we've seen with Netflix (NFLX) and ROKU (ROKU), etc. over the years.

While past performance is never a guarantee of future performance, one can still gain a lot from studying the tendencies of companies and how they do on earnings day as we've shown in our earnings previews over the years (here, here and here). Based on FUBO's earnings history, we wouldn't be surprised to see revenues come in around $150M+ with EPS around -$0.60.

With shares currently trading in the $25-30 range, we believe the stock price does not currently reflect an earnings beat and that's great news for investors who are looking to start or add to their positions. Most companies that have a big runup into earnings almost always fall no matter what they report. It's your typical Wall Street "buy the rumor, sell the news" event. If FUBO reports another blowout quarter - which we believe they will - shares could see the same type of post-earnings jump (+20%) that we've seen the past two quarters.

Q3 Earnings: What to watch

If you like earnings beats, then FUBO is the stock for you.

The company has beaten and raised its subscriber and revenue guidance in every quarter since going public last year. With numerous tailwinds and upcoming catalysts (Sportsbook launch, more market access agreements, etc.), we believe the company will beat estimates and should continue the trend of raising its subscriber and revenue guidance.

While most investors just watch the top and bottom lines, we believe it's important to see the whole picture and how the company is doing in regard to user growth, margins, advertising, future guidance, etc.

So with that, here's a look at what to watch for when FUBO releases its Q3 earnings report.

Subscribers: While FUBO had made great strides in ramping up its advertising revenue, the sports-first streaming provider's main source of revenue still comes from paying subscribers. Everything the company does serves the user base to help attract new subscribers. That's why user growth is arguably the most important metric when it comes to FUBO as the top and bottom lines are heavily dependent on user growth and paying customers.

Last quarter, the company added more than 91,000 paid subscribers, which represented 138% growth year-over-year and 16% sequentially. It was the second consecutive quarter that FUBO reported sequential revenue and subscriber growth.

Source: FUBO Shareholder Letter

While the image above shows the user growth breakdown year-over-year, below is a breakdown on what the company has done sequentially the past four quarters. As you can see, user growth continues to grow sequentially as well, which is a great sign, especially considering the seasonality factors at play.

	Q3 2020	Q4 2020	Q1 2021	Q2 2021
Subscribers	455K	548K	590K	681K

Click to enlarge

For new investors, sequential growth compares a company's recent financial performance to the last previous quarter. This, combined with year-over-year growth helps paint the full picture. For example, a company may report 100% revenue growth year-over-year, which would be impressive, however, if sequential growth - or quarter-over-quarter - is flat or negative, that could be a red flag. Keep in mind that sequential growth can be somewhat skewed as companies can have seasonal fluctuations and other factors, especially FUBO, which is sports-focused. For example, subscriber growth tends to get a big boost in the fall thanks to football, and tends to dip a bit after the season is over.

Nevertheless, FUBO continues to raise its revenue guidance and paid subscriber forecast. FUBO now expects to have 910K-920K subscribers by the end of the year, up from its previous guidance of 840K and 765K over the past two quarters. This new figure implies more than 65% growth year-over-year and we wouldn't be surprised to see management raise this again with sports viewership up big across all major sports. If FUBO does raise guidance again, it would mark the fifth time that management has done so since this time last year.

	2019	2020	2021
Subscribers	315,789	547,880	915,000*

Click to enlarge

* Midpoint (910K-920K)

ARPU: Gaining subscribers does nothing for a company if it can't successfully monetize its user base. ARPU, or "average revenue per user," is a key metric that measures how well FUBO is monetizing its active accounts.

In Q2, ARPU jumped 30% year-over-year to $71.43. On a sequential basis, ARPU was up 4% from $69.09. However, because sports has a lot of seasonality, the best metric to look at is year-over-year.

Over the past four quarters and on a year-over-year basis, ARPU is up 14%, 17%, 28% and 30% respectively, and has been trending even higher over the past two quarters too. Based on this, we feel ARPU will be similar to Q1 and Q2 and will likely come in around 30% in Q3.

Source: FUBO Presentation

When it comes to advertising revenue, FUBO has been able to grow this part of the business impressively over the past year with year-over-year growth of 153%, 133% and 206% and 281% over the last four quarters. This was done in the middle of the pandemic when ad spending slowed considerably too. The fact that ad spending continues to rebound strongly bodes well for FUBO and we believe the company will show that in Q3 with growth of 200%+ once again.

Margins: Adjusted contribution margin ("ACM") is another way investors can track FUBO's progress. This measures the variable costs against subscriber revenue. ACM is calculated by subtracting ACPU from ARPU. ACM has steadily increased over the years and should continue its upward trajectory. Below is a breakdown of ACM over the past two years.

Q2 2021	8.3%
Q1 2021	5.3%
Q4 2020	11.7%
Q3 2020	16.1%
Q2 2020	5.1%
Q1 2020	3.0%
Q4 2019	0.7%
Q3 2019	0.5%
Q2 2019	-4.4%

Click to enlarge

As you can see, seasonality does impact FUBO as Q3 and Q4 are the company's strongest quarters due to so many sporting events. When looking on a year-over-year basis, you can see that FUBO has shown dramatic improvement each quarter and we expect to see similar results in Q3.

Raised Guidance:

As we noted earlier, if you like earnings beats and raised guidance, then FUBO is the stock for you. The company has beaten and raised its subscriber and revenue guidance every quarter since going public last year.

Will the trend continue?

While nobody can predict the future, looking at data metrics (app downloads, sessions, etc.) can help give us a better idea. The fact that downloads have accelerated over the past two months (football season), we feel there is a great chance that management will likely raise guidance once again.

As of last quarter, the company now expects full-year 2021 revenue to be around $565M, compared to $520M in originally projected last quarter, $465M it projected in Q4 and $425M it projected in Q3. To sum it all up, management has raised 2021 revenue guidance by nearly $150 million or 33% since last November. Again, the fact that shares are trading at 4X 2022 revenue estimates is mind-boggling.

Instead of 70% year-over-year growth, the company is now on track to deliver revenue growth of 116% based on its latest revenue guidance. The revenue acceleration is extremely impressive considering the company grew 83% last year during the heart of the COVID-19 pandemic. And as the economy continues to open up and with COVID starting to take a back seat, FUBO still continues to ride the streaming tailwinds as consumers cut the cord for streaming providers such as FUBO.

Source: Shareholder Letter

Conclusion

Last quarter, FUBO CEO David Gandler gave us a glimpse of the FUBO Sportsbook and how it will work.

As shown in the video below, when a user switches channels on the streaming device, it will bring up a betting window on the users phone through the FUBO Sportsbook app. If you switch to a different channel, it will automatically sync to your phone so that you can quickly and easily make a bet in real time.

We talked about this in great detail in a previous Seeking Alpha article last July. To summarize, there are projections that sports betting could be a $155 billion industry by 2024.

Think about it.

During live NFL games, FUBO users would be able to bet on a kicker making or missing a field goal, or bet on how many touchdown passes Tom Brady will throw in the game. Switching to the NBA, users could bet on if LeBron James or Giannis Antetokounmpo will make free throw attempts or if Steph Curry will make more than six 3-pointers in a game. In soccer, users would be able to bet on which team will score first, or which team will win the penalty shootout. The list goes on and on.

These are just a few examples of how live sports betting can change the game and be a huge income source for companies like FUBO. And with the company projecting to have roughly 915K users (67%+ year-over-year) by the end of the year, the betting pool continues to grow with each passing day.

And as we've noted previously, FUBO CEO David Gandler believes the integration of sports wagering within FUBO can add $10, $15 or $20 of monthly revenue per customer.

If the company can add $10-20 of monthly revenue per customer through sports betting, that would bring in roughly $9.2M-18.4M per month or $110M-$220M per year based on 915,000 subscribers. This would represent 14-26% in added top-line growth based on 2022 estimates. Of course, not every person will bet, but there's a strong likelihood that some subscribers will make multiple bets during a game or week, which can add up quickly and offset those who don't bet.

If FUBO can achieve 1.5 million subscribers by the end of 2022, that could bring in roughly $15-30 million per month or $180M-360M per year. Taking the midpoint ($22.5 million per month), this would add 20% to the top line based on 2023 estimates. Below is a breakdown on the impact sports betting would have on the top line.

	Revenue Estimate	+ Sports Betting	Total Projected Revenues
2022	$920M	$165M*	$1.08B
2023	$1.5B	$270M*	$1.77B

Click to enlarge

* Based on midpoint figures ($15 revenue per month, per subscriber)

Institutions seem to be understanding this as ownership continues to rise. FUBO, which went public this time last year, went from having around 200 institutions at the start of the year, to nearly 500 right now. That's an increase of 150% so far this year. More investors and money managers are finally realizing that FUBO is becoming more than just sports streaming company and that's why so many are quietly moving off the sidelines. FUBO continues to bring in additional revenue streams (advertising, betting, etc.) and continues to grow its subscriber base because of the company's priority of enhancing the viewing experience.

Data by YCharts

Another important factor to consider is that shares of FUBO aren't for the faint of heart. Since the IPO last year, shares have climbed as high as $62, only to hit a low of $14 just six months later. Shares have since stabilized since then and have been trading between $25-30 over the past two months. The shelf offering in August combined with overall weakness in the market in September kept shares from breaking out. Now with earnings on tap next week, we believe, if earnings are solid and revenue guidance is raised, that shares will breakout and could possibly test the 52-week high ($62) by the end of the year.

For us, shares are not only undervalued, but, the risk/reward has never been better in FUBO! After the Q1 report in May, shares doubled and climbed to as high as $35. The fact that investors can pick up shares in the $28-29 range right now is a bargain in our eyes considering all the progress, partnerships and announcements the company has made since then. Below is a look at some of the notable announcements over the past two months:

• fuboTV named authorized gaming operator of NASCAR
• fuboTV expands partnership with Vizio
• Fubo Gaming receives license in Arizona
• Fubo Gaming receives approval in Iowa
• Fubo Gaming announces market access agreement in Pennsylvania
• fuboTV, AT&T SportsNet Rocky Mountain announce distribution agreement
• fuboTV, ROOT SPORTS announce distribution agreement
• fuboTV launches ecommerce shop for exclusive branded merchandise
• fuboTV announces partnership with the Cleveland Cavaliers
• fuboTV announces partnership with the New York Jets
• fuboTV acquires exclusive Serie A and Coppa Italia rights
• fuboTV Selects Magnite as Preferred SSP

Not only is the company delivering record numbers each quarter and raising guidance in the process, but management continues to gain more credibility each day as the young company continues to deliver on its promises.

As you can see in the recent announcements above, the company continues to execute and enhance the viewing experience for customers with more channels and sports coverage, as well as making great strides in online betting with access deals in more states. To sum up, the company is favorably positioned within three secular growth trends: cord cutting, online betting and connected TV.

Overall, we feel shares are in a low risk/high reward position right now heading into earnings. We believe shares are a no-brainer at these levels and have added to our position. With short interest standing at roughly 21%, and with plenty of catalysts on the horizon (sportsbook launch, more market access agreements, etc.), we believe short sellers are playing with fire and are running on borrowed time.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of FUBO either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.