June 11, 2021
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Transcript

Marko Rojnica

fuboTV, or just FUBO, is a sports-centric live streaming service that cable-cutters have been very passionate about throughout the past 6 months.

The company is in direct competition with the big cable providers, placing themselves as the more affordable alternative for watching live sporting events.

FUBO went public on October 7th 2020, opening up near $11.

Investors were immediately rewarded with a solid earnings report quickly doubling the stock in 5 weeks.

From $20 to $30 took even less time - (on video “only 4 weeks!) - as analysts rushed in to boost the stock. 

Incredibly...within 2 weeks... FUBO doubled again to an all-time high - $62! - with rumors of an online sports betting launch and the CEO announcing several exclusive sporting events on FuboTV.

Then, like many of these momentum names, it took a short-seller report to knock it down. And boy did it! 

As fast as it went up, FUBO dropped back to $23 only to then… climb right back with another good earnings report and more analyst upgrades.

By February, the industry wide momentum trade was over. FUBO declined steadily over the next 3 months…

Finally bouncing off of a $14.64 low to the mid-$20s with the recent announcement that fuboTV would be streaming the upcoming Qatar World Cup qualifying matches for South America.

That’s where we are today.

So, where is FUBO going next, and how can we use Options to profit from it?

In this video, I’ll guide you through the bull and the bear case…

Then, we’ll get Felix Frey on to give us his view on the stock, and show us different Options plays that you can use, whether you’re bullish or bearish…

So stay tuned, you don’t want to miss it.

So, we have an exciting live streaming company that made a monster move from $12 to $62 in less than 3 months, only to trade off to the current level of $29.

My name is Marko Rojnica, and I’m going to show you what the bulls and bears are saying about FUBO, and then, we’re going to have Felix Frey show us a few different options plays.

But first...

What is fuboTV?

fuboTV was created in 2015 by David Gandler, as an online paid TV service for soccer fans.

The industry term for fubo’s business is mVPD.

That stands for Virtual Multichannel Video Programming Distributor.

The “Virtual” label refers to the lack of physical infrastructure.

Fubo doesn’t own or operate a network, but delivers the service over the internet.

As of right now, Fubo doesn’t own or produce any content, but they have plans of doing so during the South American Qatar World Cup 2022 Qualifying matches.

Currently, Fubo primarily licenses for distribution a bundle of TV networks owned by the likes of Disney, Fox, CBS and others.

Subscribers can access Fubo through various streaming platforms like Roku or with a smart device connected to the internet.

FUBO offers a service without a contract and their starting price plan is $65 per month and their higher tier plan costs $80 per month.

In their plans, you get access to either 115 or 159 channels of various different content, including news, entertainment and live sports.

The main difference between fubo and other cable/satellite companies is that fubo is priced below their competition and aims to deliver more live sports than their competitors.

Fubo is also more technologically advanced in the sports viewing experience. It uses technology that allows you to watch multiple streams of your choosing on one screen, allowing sports fans to simultaneously watch more than one game.

Now that we know a little bit more about fuboTV, let’s see what the bulls are saying.

1) Strong Growth Numbers

Over the past couple quarters, fuboTV has been showing very good sales numbers.

Their Q1 2021 revenue more than doubled, growing 135% YoY.

Subscription revenue increased 131% YoY, while the Average Revenue Per User (ARPU) also jumped, up 28% to $69.09.

Right now, fuboTV has 590,000 subscribers, which is more than double from last year’s Q1, and they’re estimating 840,000 subscribers in FY2021.

That would translate into approximately $525 million in revenues for 2021, more than double the $261.5 million from 2020.

This is also important…

Historically, FUBO subscribers would choose to leave the platform going into the New Year due to the lack of sporting events.

For the first time... fuboTV was able to gain subscribers going from Q4 to Q1 by adding 43,000 new subscribers.

All of this … points to a healthy growth rate in fuboTV.

Because of that, the bulls tend to point to the valuation and the potential upside as one of the main arguments to own Fubo stock.

They like to compare it with other similar businesses, such as DraftKings, a rapidly growing sports betting company, which trades at 17x sales.

As well as a mature streaming company like Netflix, that is valued at around 7.5x its forward sales.

The bulls argue that a fair multiple for Fubo would be around 15x FY2021’s sales, implying an upside over 100% from the current price levels.

They argue that if Fubo keeps growing at their current triple digit rate, that 15x multiple would be cut in half (show “7.5x” on the slides) by the end of FY2022. 

The Bulls see this both as … very realistic and a reasonable estimate.

So, how are they planning on keeping this high growth rate?

Let’s take a look at the second bullish point to find out…

2) Industry Growth Potential & Audience Size Increase

We just talked about FUBO’s significant audience growth over the past 2 years…

During the same period, we saw households drop cable services at an alarming rate… a record 7.5% decline in the last year alone.

This “Cord cutting” trend is a fast growing trend among US residents aimed at reducing their high-cost pay-TV options, such as cable and satellite TV, with better and cheaper alternatives.

This has led to the emergence of giants such as Netflix, Hulu, Amazon Prime Video, Disney+ and HBO Max. 

But there was still one service missing…

… and that is a dedicated sports live broadcasting mVPD service.

Enter FUBO.

A survey found that 55% of cable subscribers state that Live Sports is an important factor in their decision to stay with expensive cable packages.

This means that out of 77.6 million currently subscribing to cable and satellite... 42 million are live sports fans.

Now that’s a lot of people!

And if these people were given a cheaper alternative with a similar experience, if not better… you can see the tremendous growth potential for fuboTV subscribers.

There’s also growth potential with original content.

As of right now, fuboTV licenses content that’s not their own, but what would happen if that changed?

Do you know how much ESPN is valued at today?

$50 Billion dollars.

With a sports-centric audience that’s always looking for engaging sports commentary and game updates, is it that far-fetched to think they couldn’t replicate something like an ESPN? 

Think about this...

On September 7, 1979, an estimated 30,000 viewers tuned in to witness the launch of ESPN. The $50Billion ESPN that we know today … started off like THIS…

So, no… FUBO isn’t going to create a $50Bn ESPN on day 1… but having a built-in audience would absolutely help them get started. 

Btw… FUBO is only valued at around $4 Billion today.

Find the next Chris Berman or find another David Portnoy to talk all-things sports … and people will watch!

If they could find any bit of success here… FUBO is sitting on a goldmine.

So…

Just remember these numbers...

While fuboTV has 590,000 subscribers.... There are still about 30 million people in the US that have cut the cord (“no more cable”), and 42 million dedicated sports fans still subscribed to cable.

That’s 72 million potential new paid subscribers.

And remember, we’re just talking about the US… what about internationally?

As of right now, fuboTV is primarily available in the United States, along with Canada and Spain, where the subscriptions are much cheaper and have less content.

But if they’re able to expand internationally and start taking away market share in other countries, it could generate some serious revenue.

Let’s now take a look at the last bullish point.

3) Add-on Businesses: Sports Betting & Advertising

While streaming and subscriptions are FUBO’s main business. They have other ways of adding to revenue growth.

Let’s start with Sports betting...

The sports betting industry is projected to be worth as much as $150 billion by 2024. It’s an obvious extension to FUBO’s plans.

fuboTV’s first step in entering this market was the purchase of Balto Sports on December 1st, with plans of launching free-to-play games this year.

Then in Q1, Fubo acquired Vigtory, a sports betting and interactive gaming company for $37.2 million dollars.

This leads us to Fubo Sportsbook, which is expected to launch in Q4. The company plans on spending less than $50 million to launch sports betting. 

Combining gaming with their technology would create a seamless experience between watching live content and simultaneous betting.

With the integration of Balto Sports and Vigtory...

They expect 30% of fuboTV's users will play free-to-play games, and about 22% of users are willing to place bets on sports matches.

To support this effort...

fuboTV has recently signed deals to become an authorized gaming operator of Major League Baseball and the NBA. This is very big news as these leagues attract millions of sports lovers on a daily basis.

Lastly, how can you talk about a Live sports streaming business without talking about advertising. 

Live sports will always be the top-rated advertising slots on TV simply because people don’t like watching taped sporting events. In other words, they don’t have a choice but to see ads.

For the Bulls, Fubo’s advertising is a strong point…

Right now, advertising is 11% of the company’s total revenue.

Q1 advertising revenue growth was 206%, totalling $13 million, with advertising ARPU per month rising 57%, to $7.11.

With those numbers, fuboTV is making 2.5x Roku’s ARPU, while Roku is considered top notch in advertising.

Roku sells devices that you plug into your TV and it let’s you stream a variety of content, like entertainment, news, music and sports.

So, why is advertising on fuboTV so valuable?

Not only is it sports… but it’s also their customer demographics. 

Fubo has access to one of the most “hard to reach” audiences when it comes to advertising, and those are men between the ages of 18 and 34, and persons in general between 18 and 49.

93% of their viewers watch fubo on a connected TV device, and 90% watch their favorite content live.

If Fubo is able to keep growing this audience, they can become a serious player in the advertising space.

Now, before moving on to the bear arguments, let’s quickly recap the bullish points we’ve made in Fubo:

The bulls start off with fubo’s strong growth numbers… followed by their industry’s growth potential and audience size expansion.

Lastly, bulls believe that their add on businesses, sports betting and advertising, are going to yield great results over the long run. 

Those were the main bullish points in Fubo, but let’s now look at what the bears are saying…

1) Problems with their Numbers & Growth

In 2017, fuboTV decided to pivot more mainstream instead of just being a service for die-hard soccer fans streaming 2nd tier soccer.

They struck agreements with Fox, CBS and NBC for broader packages of TV channels.

However, this brings in negative consequences money wise.

Their original strategy brought consumers 2nd tier soccer and news that were relatively inexpensive and needed to be consumed live.

They were servicing a very niche audience.

Because they decided to expand, they’d eventually fall victim to the same pressure points of the traditional TV industry they are trying to disrupt.

Why is that?

For example, if they just wanted a select few sports channels, and wanted to lease those from Fox, they couldn’t do it. 

Neither legally, nor would Fox want them to.

They had to include a lot of general entertainment channels with their offering. 

If you take a look on their website, you can see that there’s significantly more “entertainment & news” channels compared to “sports channels.”

This bloating of the “original sports only” skinny bundle tremendously brought up costs for Fubo, requiring them to endlessly raise prices to preserve margin.

Even the CEO David Gandler acknowledged this in 2016 by stating:

“TV is a very expensive game. The expectations are that TV will acquire the most valuable sports rights because they offer the most scale, and the more scale you have, the more compelling your offering is with advertisers, and the more you can draw from fees with distributors.”

So in 2016 he was talking about a problem other distributors had, only to be in the exact same position just a few years later.

Their base package prices have increased at a 22% compound annual growth rate for the past three years, and the subscription still does not generate positive contribution margins.

This following quote comes from a senior marketing executive at SlingTV:

"What FUBO did was they became drunk with the excitement; that they had jumped the shark of being this niche player, to being entrants to a market which was growing quite rapidly at the time…and they took on all of this content. But in doing so they lost their way. Now, it’s a “me-too” strategy…they don’t have the additional products and services to be able to create growth. They don’t have the leverage with the networks to be able to create packaging that is going to be innovative. 

It's truly unclear what they are doing. It’s not just the price point is high, and much higher than a cord cutter is willing to pay. It’s that the price has locked-in increases every year. These are multi-year deals with these big networks - and they are caught. All that they can do is continue to ramp up their price points and continue to take more and more expensive tiers which is exactly the trap the industry wants to get you in. They no longer really control their future and it’s sad when I think about their prospects."

With that in mind, bears like to also point out that the reason why Fubo’s management emphasizes their future non-existent revenue streams, like advertising and sports betting, is because their core business of selling subscriptions will never make any money.

They argue that Fubo’s revenue stream is burdened by high variable content costs that are paid to a handful of conglomerates that dominate all major content in the country and have all the leverage.

As they aren’t in a strong negotiation position with only half a million subscribers, the “big players” will keep raising their prices and Fubo will have to keep transferring that onto their users, inevitably driving up their subscription prices up.

But as we’ve noted, the bulls put a lot of emphasis on their other business models, such as advertising and sports betting, so let’s take a closer look at the second bearish point…

2) Their advertising expansion plans are just a farce

The bulls get very excited about Fubo’s advertising prospects, stating that it currently makes up 11% of the company's revenue, with more room to grow.

But consider this...

The Trade Desk is one of the largest demand side platform operations in the world... offering agencies, aggregators and their advertisers best in-class technology.

They are the leading player when it comes to Connected TV advertising.

Why do I mention this?

Because the Sr. Director of Business Development at The Trade Desk said this about Fubo in December of last year:

"There’s a massive rise in supply. Maybe that’s coming from publishers like Fubo - the narrative that CPMs will rise? In my opinion that doesn’t seem correct. Advertisers are already like “Man, this is already so expensive.

Their data isn’t any better than anybody else’s and because they’re a content distributor not a content owner, there’s nothing special about the inventory they sell.

It's really funny honestly that Fubo is comparing itself to Hulu, almost comical to me."

The fact that a senior director at The Trade Desk sees no reason to be optimistic about Fubo’s ability to increase advertising rates should be very concerning.

With advertising being the only current source of high margin revenue, Fubo’s profitability is directly tied to its ability to sell more advertising at higher rates.

Across the industry average, Connected TV CPMs have been declining as a massive increase in ad inventory matches demand.

Companies like The Trade Desk encourage brands and agencies to purchase inventory directly from producers to know precisely what they are getting.

Take Hulu as an example. Their ownership of content, their ability to deliver massive reach, the direct relationships with brands and advertisers all contribute to their ability to sell out of inventory, allowing them to charge a higher premium.

Fubo has no ability to do any of this.

They don't own the content. They don’t have negotiating leverage. They have very few relationships with brands and agencies.

At the end of the day, as the Trade Desk executive put it, fuboTV can only sell their inventory through the private marketplace where the agencies are bidding for “leftover” discounted inventory.

But now, let’s take a look at the last bearish point, and that is…

3) Sports Betting will yield minimum results

How much money can fuboTV realistically make from sports betting?

Better yet, the bears like to focus on the whole industry as opposed to just fuboTV to make their point…

Firstly, how big is the sports betting US market?

The most optimistic reports say that it’s a $150 billion per year industry.

Since most of the revenues go out to paying winners, we’re looking at around 5% - 8% left over for the companies.

That’s approximately $7.5 to $12 billion in revenue… So for simplicity reasons, let’s round it up to $10 billion. 

But even that comes with operating costs.

If they are able to save costs effectively, let’s say the costs run up to $3 billion per year.

This leaves $7 billion in profits.

This is much smaller, but still considerable.

But even this has to be divided, most likely among the books, the leagues and the government.

With more legalization across the country, state governments are going to see a lot of opportunity in taxing online sports betting, especially as it’s in direct competition with their own lottery product. 

New Hampshire got 50% split. And New York, a very big revenue state... wants the same deal.

Other states range between 2% to 51%... so let’s say the average number we’re looking for is about 20%.

So if states Tax those $7 billion at around 20%, that leaves you with around $5.6 billion dollars

The bears also estimate another $300 million (conservatively) of additional flat tax increases.

That already brings that $7 billion in profits down to $5.3 billion.

There have also been heated discussions about a 1% integrity fee imposed by the leagues on Sports Betting… and in a $150 billion industry, that would translate into additional $1.5 billion in costs.

Just something to keep in mind for the future, so we won’t include it in our existing calculations.

This leaves $5.3 billion per year in actual gambling profit for broadcasters, which is around $440 million per month.

Assuming the current 75 million subscribers continue to subscribe to sports broadcasts in some form, that is around $5 per month per subscriber.

Taking into account that fuboTV is still losing $6 per subscriber per month just in operating costs… this doesn’t seem like the best path for fuboTV towards profitability.

As a last point, since we mentioned legalization, what’s to say that the NFL won’t create their own wagering platform, or MLB or NBA?

Remember... sports betting has been around for decades. Customers are not loyal… they bet with the sportsbook that gives them the best odds. Odds in sports betting is like “price.”

Just like you wouldn’t buy a stock for $25 on Robinhood when it’s offered at $24 on Etrade… you won’t bet on the Yankees to win the world series with Fubo if Draftkings is offering better odds.

This simple fact turns the entire sports book business, whether in a casino or online... into a commodity.

So, those were the main bearish points in Fubo… 

Let’s now take another look at the bullish & bearish points before having Felix Frey on to give us a few different trade ideas in Fubo.

Bullish Points

  • Strong Growth Numbers
  • Industry Growth Potential & Audience Size Increase
  • Add-on Businesses: Sports Betting & Advertising

Bearish Points

  • Problems With Their Numbers & Growth
  • Their Advertising Expansions Plans Are Just a Farce
  • Sports Betting Will Yield Minimum Results

So, that was the rundown of Fubo, where we looked at the bullish and bearish points, but now it’s time to get Felix Frey on…

Where he’ll give us his view on the stock, lead us through the technical analysis and give us a few different options trade ideas that we can play no matter if we’re bullish or bearish…

Stay tuned, the best is about to come!

Felix Frey

Coming soon

Marko Rojnica

Thank you Felix for giving us a few different Options Trades to consider in FUBO…

Now, if you enjoyed the video, please leave a like 

AND if you’d like to see more stock analysis just like this one… 

make sure you subscribe to the channel and turn on the bell notifications.

Also, I would love to hear your thoughts on FUBO... And I’d like YOU to add to the story. Comment your thoughts & opinions on the bullish & bearish cases we’ve made… and tell us where you think FUBO is going next.

Don’t forget, OptionsGeek also has a comprehensive Options education program called 3 Steps to Profit that teaches you how to Trade Options like the Top 1%.

As a bonus, you also get 1 month free of Felix Frey’s Winning Picks Premium ideas, so make sure you check the link in the description!

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Thank you, I’ll see you in the next one.

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Transcript

Marko Rojnica

fuboTV, or just FUBO, is a sports-centric live streaming service that cable-cutters have been very passionate about throughout the past 6 months.

The company is in direct competition with the big cable providers, placing themselves as the more affordable alternative for watching live sporting events.

FUBO went public on October 7th 2020, opening up near $11.

Investors were immediately rewarded with a solid earnings report quickly doubling the stock in 5 weeks.

From $20 to $30 took even less time - (on video “only 4 weeks!) - as analysts rushed in to boost the stock. 

Incredibly...within 2 weeks... FUBO doubled again to an all-time high - $62! - with rumors of an online sports betting launch and the CEO announcing several exclusive sporting events on FuboTV.

Then, like many of these momentum names, it took a short-seller report to knock it down. And boy did it! 

As fast as it went up, FUBO dropped back to $23 only to then… climb right back with another good earnings report and more analyst upgrades.

By February, the industry wide momentum trade was over. FUBO declined steadily over the next 3 months…

Finally bouncing off of a $14.64 low to the mid-$20s with the recent announcement that fuboTV would be streaming the upcoming Qatar World Cup qualifying matches for South America.

That’s where we are today.

So, where is FUBO going next, and how can we use Options to profit from it?

In this video, I’ll guide you through the bull and the bear case…

Then, we’ll get Felix Frey on to give us his view on the stock, and show us different Options plays that you can use, whether you’re bullish or bearish…

So stay tuned, you don’t want to miss it.

So, we have an exciting live streaming company that made a monster move from $12 to $62 in less than 3 months, only to trade off to the current level of $29.

My name is Marko Rojnica, and I’m going to show you what the bulls and bears are saying about FUBO, and then, we’re going to have Felix Frey show us a few different options plays.

But first...

What is fuboTV?

fuboTV was created in 2015 by David Gandler, as an online paid TV service for soccer fans.

The industry term for fubo’s business is mVPD.

That stands for Virtual Multichannel Video Programming Distributor.

The “Virtual” label refers to the lack of physical infrastructure.

Fubo doesn’t own or operate a network, but delivers the service over the internet.

As of right now, Fubo doesn’t own or produce any content, but they have plans of doing so during the South American Qatar World Cup 2022 Qualifying matches.

Currently, Fubo primarily licenses for distribution a bundle of TV networks owned by the likes of Disney, Fox, CBS and others.

Subscribers can access Fubo through various streaming platforms like Roku or with a smart device connected to the internet.

FUBO offers a service without a contract and their starting price plan is $65 per month and their higher tier plan costs $80 per month.

In their plans, you get access to either 115 or 159 channels of various different content, including news, entertainment and live sports.

The main difference between fubo and other cable/satellite companies is that fubo is priced below their competition and aims to deliver more live sports than their competitors.

Fubo is also more technologically advanced in the sports viewing experience. It uses technology that allows you to watch multiple streams of your choosing on one screen, allowing sports fans to simultaneously watch more than one game.

Now that we know a little bit more about fuboTV, let’s see what the bulls are saying.

1) Strong Growth Numbers

Over the past couple quarters, fuboTV has been showing very good sales numbers.

Their Q1 2021 revenue more than doubled, growing 135% YoY.

Subscription revenue increased 131% YoY, while the Average Revenue Per User (ARPU) also jumped, up 28% to $69.09.

Right now, fuboTV has 590,000 subscribers, which is more than double from last year’s Q1, and they’re estimating 840,000 subscribers in FY2021.

That would translate into approximately $525 million in revenues for 2021, more than double the $261.5 million from 2020.

This is also important…

Historically, FUBO subscribers would choose to leave the platform going into the New Year due to the lack of sporting events.

For the first time... fuboTV was able to gain subscribers going from Q4 to Q1 by adding 43,000 new subscribers.

All of this … points to a healthy growth rate in fuboTV.

Because of that, the bulls tend to point to the valuation and the potential upside as one of the main arguments to own Fubo stock.

They like to compare it with other similar businesses, such as DraftKings, a rapidly growing sports betting company, which trades at 17x sales.

As well as a mature streaming company like Netflix, that is valued at around 7.5x its forward sales.

The bulls argue that a fair multiple for Fubo would be around 15x FY2021’s sales, implying an upside over 100% from the current price levels.

They argue that if Fubo keeps growing at their current triple digit rate, that 15x multiple would be cut in half (show “7.5x” on the slides) by the end of FY2022. 

The Bulls see this both as … very realistic and a reasonable estimate.

So, how are they planning on keeping this high growth rate?

Let’s take a look at the second bullish point to find out…

2) Industry Growth Potential & Audience Size Increase

We just talked about FUBO’s significant audience growth over the past 2 years…

During the same period, we saw households drop cable services at an alarming rate… a record 7.5% decline in the last year alone.

This “Cord cutting” trend is a fast growing trend among US residents aimed at reducing their high-cost pay-TV options, such as cable and satellite TV, with better and cheaper alternatives.

This has led to the emergence of giants such as Netflix, Hulu, Amazon Prime Video, Disney+ and HBO Max. 

But there was still one service missing…

… and that is a dedicated sports live broadcasting mVPD service.

Enter FUBO.

A survey found that 55% of cable subscribers state that Live Sports is an important factor in their decision to stay with expensive cable packages.

This means that out of 77.6 million currently subscribing to cable and satellite... 42 million are live sports fans.

Now that’s a lot of people!

And if these people were given a cheaper alternative with a similar experience, if not better… you can see the tremendous growth potential for fuboTV subscribers.

There’s also growth potential with original content.

As of right now, fuboTV licenses content that’s not their own, but what would happen if that changed?

Do you know how much ESPN is valued at today?

$50 Billion dollars.

With a sports-centric audience that’s always looking for engaging sports commentary and game updates, is it that far-fetched to think they couldn’t replicate something like an ESPN? 

Think about this...

On September 7, 1979, an estimated 30,000 viewers tuned in to witness the launch of ESPN. The $50Billion ESPN that we know today … started off like THIS…

So, no… FUBO isn’t going to create a $50Bn ESPN on day 1… but having a built-in audience would absolutely help them get started. 

Btw… FUBO is only valued at around $4 Billion today.

Find the next Chris Berman or find another David Portnoy to talk all-things sports … and people will watch!

If they could find any bit of success here… FUBO is sitting on a goldmine.

So…

Just remember these numbers...

While fuboTV has 590,000 subscribers.... There are still about 30 million people in the US that have cut the cord (“no more cable”), and 42 million dedicated sports fans still subscribed to cable.

That’s 72 million potential new paid subscribers.

And remember, we’re just talking about the US… what about internationally?

As of right now, fuboTV is primarily available in the United States, along with Canada and Spain, where the subscriptions are much cheaper and have less content.

But if they’re able to expand internationally and start taking away market share in other countries, it could generate some serious revenue.

Let’s now take a look at the last bullish point.

3) Add-on Businesses: Sports Betting & Advertising

While streaming and subscriptions are FUBO’s main business. They have other ways of adding to revenue growth.

Let’s start with Sports betting...

The sports betting industry is projected to be worth as much as $150 billion by 2024. It’s an obvious extension to FUBO’s plans.

fuboTV’s first step in entering this market was the purchase of Balto Sports on December 1st, with plans of launching free-to-play games this year.

Then in Q1, Fubo acquired Vigtory, a sports betting and interactive gaming company for $37.2 million dollars.

This leads us to Fubo Sportsbook, which is expected to launch in Q4. The company plans on spending less than $50 million to launch sports betting. 

Combining gaming with their technology would create a seamless experience between watching live content and simultaneous betting.

With the integration of Balto Sports and Vigtory...

They expect 30% of fuboTV's users will play free-to-play games, and about 22% of users are willing to place bets on sports matches.

To support this effort...

fuboTV has recently signed deals to become an authorized gaming operator of Major League Baseball and the NBA. This is very big news as these leagues attract millions of sports lovers on a daily basis.

Lastly, how can you talk about a Live sports streaming business without talking about advertising. 

Live sports will always be the top-rated advertising slots on TV simply because people don’t like watching taped sporting events. In other words, they don’t have a choice but to see ads.

For the Bulls, Fubo’s advertising is a strong point…

Right now, advertising is 11% of the company’s total revenue.

Q1 advertising revenue growth was 206%, totalling $13 million, with advertising ARPU per month rising 57%, to $7.11.

With those numbers, fuboTV is making 2.5x Roku’s ARPU, while Roku is considered top notch in advertising.

Roku sells devices that you plug into your TV and it let’s you stream a variety of content, like entertainment, news, music and sports.

So, why is advertising on fuboTV so valuable?

Not only is it sports… but it’s also their customer demographics. 

Fubo has access to one of the most “hard to reach” audiences when it comes to advertising, and those are men between the ages of 18 and 34, and persons in general between 18 and 49.

93% of their viewers watch fubo on a connected TV device, and 90% watch their favorite content live.

If Fubo is able to keep growing this audience, they can become a serious player in the advertising space.

Now, before moving on to the bear arguments, let’s quickly recap the bullish points we’ve made in Fubo:

The bulls start off with fubo’s strong growth numbers… followed by their industry’s growth potential and audience size expansion.

Lastly, bulls believe that their add on businesses, sports betting and advertising, are going to yield great results over the long run. 

Those were the main bullish points in Fubo, but let’s now look at what the bears are saying…

1) Problems with their Numbers & Growth

In 2017, fuboTV decided to pivot more mainstream instead of just being a service for die-hard soccer fans streaming 2nd tier soccer.

They struck agreements with Fox, CBS and NBC for broader packages of TV channels.

However, this brings in negative consequences money wise.

Their original strategy brought consumers 2nd tier soccer and news that were relatively inexpensive and needed to be consumed live.

They were servicing a very niche audience.

Because they decided to expand, they’d eventually fall victim to the same pressure points of the traditional TV industry they are trying to disrupt.

Why is that?

For example, if they just wanted a select few sports channels, and wanted to lease those from Fox, they couldn’t do it. 

Neither legally, nor would Fox want them to.

They had to include a lot of general entertainment channels with their offering. 

If you take a look on their website, you can see that there’s significantly more “entertainment & news” channels compared to “sports channels.”

This bloating of the “original sports only” skinny bundle tremendously brought up costs for Fubo, requiring them to endlessly raise prices to preserve margin.

Even the CEO David Gandler acknowledged this in 2016 by stating:

“TV is a very expensive game. The expectations are that TV will acquire the most valuable sports rights because they offer the most scale, and the more scale you have, the more compelling your offering is with advertisers, and the more you can draw from fees with distributors.”

So in 2016 he was talking about a problem other distributors had, only to be in the exact same position just a few years later.

Their base package prices have increased at a 22% compound annual growth rate for the past three years, and the subscription still does not generate positive contribution margins.

This following quote comes from a senior marketing executive at SlingTV:

"What FUBO did was they became drunk with the excitement; that they had jumped the shark of being this niche player, to being entrants to a market which was growing quite rapidly at the time…and they took on all of this content. But in doing so they lost their way. Now, it’s a “me-too” strategy…they don’t have the additional products and services to be able to create growth. They don’t have the leverage with the networks to be able to create packaging that is going to be innovative. 

It's truly unclear what they are doing. It’s not just the price point is high, and much higher than a cord cutter is willing to pay. It’s that the price has locked-in increases every year. These are multi-year deals with these big networks - and they are caught. All that they can do is continue to ramp up their price points and continue to take more and more expensive tiers which is exactly the trap the industry wants to get you in. They no longer really control their future and it’s sad when I think about their prospects."

With that in mind, bears like to also point out that the reason why Fubo’s management emphasizes their future non-existent revenue streams, like advertising and sports betting, is because their core business of selling subscriptions will never make any money.

They argue that Fubo’s revenue stream is burdened by high variable content costs that are paid to a handful of conglomerates that dominate all major content in the country and have all the leverage.

As they aren’t in a strong negotiation position with only half a million subscribers, the “big players” will keep raising their prices and Fubo will have to keep transferring that onto their users, inevitably driving up their subscription prices up.

But as we’ve noted, the bulls put a lot of emphasis on their other business models, such as advertising and sports betting, so let’s take a closer look at the second bearish point…

2) Their advertising expansion plans are just a farce

The bulls get very excited about Fubo’s advertising prospects, stating that it currently makes up 11% of the company's revenue, with more room to grow.

But consider this...

The Trade Desk is one of the largest demand side platform operations in the world... offering agencies, aggregators and their advertisers best in-class technology.

They are the leading player when it comes to Connected TV advertising.

Why do I mention this?

Because the Sr. Director of Business Development at The Trade Desk said this about Fubo in December of last year:

"There’s a massive rise in supply. Maybe that’s coming from publishers like Fubo - the narrative that CPMs will rise? In my opinion that doesn’t seem correct. Advertisers are already like “Man, this is already so expensive.

Their data isn’t any better than anybody else’s and because they’re a content distributor not a content owner, there’s nothing special about the inventory they sell.

It's really funny honestly that Fubo is comparing itself to Hulu, almost comical to me."

The fact that a senior director at The Trade Desk sees no reason to be optimistic about Fubo’s ability to increase advertising rates should be very concerning.

With advertising being the only current source of high margin revenue, Fubo’s profitability is directly tied to its ability to sell more advertising at higher rates.

Across the industry average, Connected TV CPMs have been declining as a massive increase in ad inventory matches demand.

Companies like The Trade Desk encourage brands and agencies to purchase inventory directly from producers to know precisely what they are getting.

Take Hulu as an example. Their ownership of content, their ability to deliver massive reach, the direct relationships with brands and advertisers all contribute to their ability to sell out of inventory, allowing them to charge a higher premium.

Fubo has no ability to do any of this.

They don't own the content. They don’t have negotiating leverage. They have very few relationships with brands and agencies.

At the end of the day, as the Trade Desk executive put it, fuboTV can only sell their inventory through the private marketplace where the agencies are bidding for “leftover” discounted inventory.

But now, let’s take a look at the last bearish point, and that is…

3) Sports Betting will yield minimum results

How much money can fuboTV realistically make from sports betting?

Better yet, the bears like to focus on the whole industry as opposed to just fuboTV to make their point…

Firstly, how big is the sports betting US market?

The most optimistic reports say that it’s a $150 billion per year industry.

Since most of the revenues go out to paying winners, we’re looking at around 5% - 8% left over for the companies.

That’s approximately $7.5 to $12 billion in revenue… So for simplicity reasons, let’s round it up to $10 billion. 

But even that comes with operating costs.

If they are able to save costs effectively, let’s say the costs run up to $3 billion per year.

This leaves $7 billion in profits.

This is much smaller, but still considerable.

But even this has to be divided, most likely among the books, the leagues and the government.

With more legalization across the country, state governments are going to see a lot of opportunity in taxing online sports betting, especially as it’s in direct competition with their own lottery product. 

New Hampshire got 50% split. And New York, a very big revenue state... wants the same deal.

Other states range between 2% to 51%... so let’s say the average number we’re looking for is about 20%.

So if states Tax those $7 billion at around 20%, that leaves you with around $5.6 billion dollars

The bears also estimate another $300 million (conservatively) of additional flat tax increases.

That already brings that $7 billion in profits down to $5.3 billion.

There have also been heated discussions about a 1% integrity fee imposed by the leagues on Sports Betting… and in a $150 billion industry, that would translate into additional $1.5 billion in costs.

Just something to keep in mind for the future, so we won’t include it in our existing calculations.

This leaves $5.3 billion per year in actual gambling profit for broadcasters, which is around $440 million per month.

Assuming the current 75 million subscribers continue to subscribe to sports broadcasts in some form, that is around $5 per month per subscriber.

Taking into account that fuboTV is still losing $6 per subscriber per month just in operating costs… this doesn’t seem like the best path for fuboTV towards profitability.

As a last point, since we mentioned legalization, what’s to say that the NFL won’t create their own wagering platform, or MLB or NBA?

Remember... sports betting has been around for decades. Customers are not loyal… they bet with the sportsbook that gives them the best odds. Odds in sports betting is like “price.”

Just like you wouldn’t buy a stock for $25 on Robinhood when it’s offered at $24 on Etrade… you won’t bet on the Yankees to win the world series with Fubo if Draftkings is offering better odds.

This simple fact turns the entire sports book business, whether in a casino or online... into a commodity.

So, those were the main bearish points in Fubo… 

Let’s now take another look at the bullish & bearish points before having Felix Frey on to give us a few different trade ideas in Fubo.

Bullish Points

  • Strong Growth Numbers
  • Industry Growth Potential & Audience Size Increase
  • Add-on Businesses: Sports Betting & Advertising

Bearish Points

  • Problems With Their Numbers & Growth
  • Their Advertising Expansions Plans Are Just a Farce
  • Sports Betting Will Yield Minimum Results

So, that was the rundown of Fubo, where we looked at the bullish and bearish points, but now it’s time to get Felix Frey on…

Where he’ll give us his view on the stock, lead us through the technical analysis and give us a few different options trade ideas that we can play no matter if we’re bullish or bearish…

Stay tuned, the best is about to come!

Felix Frey

Coming soon

Marko Rojnica

Thank you Felix for giving us a few different Options Trades to consider in FUBO…

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