Is the fuboTV share too much of a bet for investors?

Despite triple-digit year-over-year revenue growth, driven by an influx of paying subscribers, fuboTV (NYSE: FUBO) accumulates losses. While management explains that these losses are due to heavy investments in new products specifically related to sports betting, the company’s shares have fallen 41% since January 1. Is fuboTV positioned to evolve as an innovative leader in the streaming war? Let’s dig and find out.

What makes fuboTV different

The multitude of streaming services available today can be overwhelming for customers. For investors, it can be difficult to discern which companies offer the most popular streaming services. One thing that might help investors is that when they look at the major streaming providers, most of them have other lines of business, with content serving as a tangential source of revenue. Major technological leaders such as Apple, Amazon, and Alphabet all of them offer streaming services in addition to their legacy hardware, software services, and e-commerce businesses. In addition to its theme parks, Disney has launched its own service, Disney +, and owns a stake in Hulu, while internet service provider Comcast launched Peacock and the media conglomerate ViacomCBS launched Paramount +. Then of course there is Netflix. With all of these options available, what makes fuboTV different?

On the surface, fuboTV looks similar to many of these other streaming services as it offers many of the same channels and programs. However, the company is promoting itself as a sports-oriented offering. Many of the streaming services mentioned above focus on either original content or archiving classic TV programs for exclusivity. On the other hand, fuboTV makes sports streaming the central point of differentiation. The fuboTV platform offers programming from all major sports leagues including the NFL, NBA, MLB, and international soccer leagues.

The sports-focused focal point resonated with a wider audience. The company saw triple-digit year-over-year growth in the third quarter of 2021 in total paying subscribers (up 108% to 945,000). In addition, since the end of the quarter, fuboTV announced that it had reached the milestone of one million paying subscribers in total. With this level of growth, some investors might be surprised by the company’s growing losses.

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Is the economic model broken?

For the third quarter ended September 30, 2021, fuboTV reported total revenue of $ 156.7 million, representing 156% year-over-year growth. Advertising revenue was $ 18.6 million, representing a 147% year-over-year growth. While this is very impressive, the cost of this growth can be of concern to investors.

fuboTV reported a net loss of $ 105.9 million in the third quarter of 2021, and its net loss in the first three quarters of the year is $ 270.8 million. The reason for these losses is attributable to the expenses associated with the company’s subscribers. In the first nine months of 2021, fuboTV spent $ 377.1 million in subscriber-related expenses, representing 93% of the cumulative total revenue for the year. These subscriber expenses consist primarily of affiliate distribution rights and other distribution costs related to streaming content. One positive thing to note is that these expenses are decreasing for fuboTV. Subscriber-related expenses accounted for over 100% of total revenue for the first nine months of 2020. However, investors shouldn’t take this momentum at face value. In effect, the costs of affiliate distribution rights are incurred on a per subscriber basis and recognized when the related programming is distributed to subscribers. For every new subscriber fuboTV earns, it has to pay distribution partners like Disney. This dynamic makes it difficult for the company to achieve operational efficiencies, therefore, it continues to lose money.

Is sports betting the answer?

Some industries flourished during the pandemic, and sports betting was certainly one of them. The American Gaming Association estimated that Americans placed over $ 4 billion in Super Bowl LV bets in February 2021, making it the largest single-event legal handle in sports betting history. Americans. This statistic is even more impressive when you consider that it was the least-attended Super Bowl since its inaugural game in 1967 due to the pandemic. One factor that has served as a catalyst for the increase in sports betting is the growing popularity of online sports betting. Goldman Sachs projects that online sports betting could grow by 40% per year over the next decade.

The explosion in sports betting has not gone unnoticed. fuboTV takes its sports-centric approach to the next level. In November, the company announced its first effort to enter the mobile sports betting market by launching Fubo Sportsbook. Fubo Sportsbook is more than just a sports betting platform or a mobile app as the company tries to fill the demand for interactivity through a sports betting platform with live TV broadcast experience. By integrating with fuboTV’s streaming service, the sports betting app creates an experience in which passive viewers are now active and more engaged participants with the content. Fubo Sportsbook also leverages company user data to allow subscribers to view betting content based on what they are broadcasting.

fuboTV is betting its future on the rise of sports betting. Company management believes that these product improvements will create a flywheel, improving engagement and retention of the subscriber base. As a result, it can be argued that this increased engagement will lead to further growth on the advertising side of the business as advertisers continue to migrate from traditional linear TV to streaming platforms as shown in JP Morganthe latest analyst report from fuboTV. Unlike subscriber income, advertising does not have such high associated costs. By bolstering advertising revenue, the business should be able to cut losses and chart a viable path to profitability.

Now what?

When it comes to streaming, fuboTV is an interesting case study. The company does not necessarily offer differentiated programming or original content. However, by focusing on live streaming sports, it has created a unique position compared to other legacy streaming platforms. The key element that investors need to watch out for is the profitability profile of the business. If fuboTV continues to gain subscribers and increase revenue, it may be that full history of the direction the company is taking. It’s important for investors to look at engagement and retention metrics like the number of hours streamed and the total number of paid subscribers. Additionally, investors will need to be patient when it comes to taking advantage of the company’s new sports betting features. If these features resonate with existing subscribers and help attract new ones, there is a possibility that fuboTV may be able to generate more significant revenue from advertisers, thereby driving margin expansion and paving the way for profitability. . I do not consider fuboTV to be a risk free investment; however, I wouldn’t call it a total bet either.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.