Read on Twitter
With $FUBO reaching an $8Bn market cap today, I feel obligated to warn retail investors what they’re getting into
This is not “the next Netflix.” $FUBO buys traditional networks from major content companies, and resells them in packages to customers. Just like Comcast, DirecTV and Charter
Yes, these bundles are offered "over the internet." Many others, including YouTube TV, Hulu Live, Sling, and AT&T Now have been doing this for several years. Industry people call them “virtual MVPDs”
These vMVPD packages are all very similar, because content networks are owned by a small handful of media companies, who force distributors to carry all their networks together
For the many distributors selling these packages, this is a tough, commoditized, low margin business. This is especially true for smaller operators like $FUBO (they only have 500k subs)
Let’s look at how $FUBO's financials reflect this: in the first 9 months of 2020, they reported $105m in revenue from their subscribers. The cost of their content alone (ex-marketing and tech costs), was $114m
To draw a simple analogy, this is like an e-commerce business buying tables for $100 from their supplier, and selling them for $90. That will certainly help revenue growth!
The bad news: $FUBO pays for content networks on a per sub basis - this cost is contracted and usually rises 4-5% each year. So $FUBO will have to raise price every year (or grow their small ad sales by a huge amount), just to keep this negative margin from getting even worse
More bad news: $FUBO spends about $60 on avg to acquire a customer. As we’ve seen, those customers contribute negative profit. They also churn at 10%+ per month! So most are gone within 6 months. Could be the worst user acquisition economics I’ve ever seen
$FUBO's competitors are well aware that this is a tough business. Sony had a similar vMVPD service with 750k subscribers, which they tried (and failed) to sell a year ago. Instead, they just shut it down and walked away - for nothing!
As another example, AT&T has realized they can’t make money here either, and has raised prices and largely given up. Their AT&T Now sub base has declined from 1.9m in 2018 to 700k
“But $FUBO offers sports!” - in an effort to bring down content costs, in July $FUBO was forced to drop Turner (TNT and TBS). Sports fans may be surprised to learn they won’t have access to many NBA, MLB playoff and NCAA games, which other vMVPDs carry
In 2022, $FUBO subs won’t be able to watch the Final Four - unless $FUBO wants to pay another $5 per sub, and drive their gross margin further into negative territory
“What about exclusive sports content?” - quality sports rights cost hundreds of millions to billions per year. And every sport wants to reach tens of millions of fans. For $FUBO, a small service w 500k subs and negative profit, this is a non-starter
"What about sports betting?" - despite constant promotion from management, there's no clear strategy here. $FUBO is a long way from actual betting, which would require major new tech investments and regulatory approvals, not to mention people using TV apps in an entirely new way
Lastly - $FUBO's diluted share count is 159m, which at $50 implies an $8.0Bn market cap. Many services are picking up the incorrect numbers
To summarize: $FUBO is chasing a rapidly declining addressable market, with a commoditized low margin product and atrocious customer acquisition economics. And despite all this, it's now trading at 32x 2020 revenue! Buyer beware
My $FUBO thread above may be of interest to @RichLightShed @michaelpachter @ballmatthew @CitronResearch @maybebullish @WallStCynic @pkafka @LibertyRPF @MrZackMorris @StockJabber
