Fubotv Inc (FUBO) 2020 Q3 法說會逐字稿

Good afternoon.

Thank you for joining us to discuss fuboTV's Third Quarter 2020.

With me today is David Gandler, CEO and Co-Founder of FUBO; and Simone Nardi, CFO of FUBO.

Before we begin, let me quickly review the format of today's presentation.

David is going to start with some brief remarks on the quarter and FUBO's strategy, and Simone will cover the financials and guidance.

Then I'm going to turn the call over to the analysts to dig into Q&A.

I will conclude by taking investor questions that were submitted in advance of our call.

Before we begin, I would like to remind everyone that this call may contain forward-looking statements, including statements about revenue and subscribers and other nonhistorical statements as further described in our press release.

These forward-looking statements are subject to certain risks and uncertainties and assumptions, including those related to FUBO's growth, evolution of our industry, product development and success, including with respect to online wagering and general economic and business conditions, such as the impact of COVID-19.

These statements reflect the company's current expectations based on its beliefs, assumptions and information currently available to it.

Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call.

Description of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our reports filed with the SEC, including our most recent annual report and our press release that was issued this afternoon.

During the call, we may also refer to certain non-GAAP financial measures.

Reconciliation with the most comparable GAAP measures are also available in the request release on our website at ir.fubo.tv.

With that, I'll turn the call over to David.

So thank you, Brinlea.

We're really excited to be hosting our first earnings call as a publicly traded company on the NYSE.

Since we're a leading live streaming platform, we thought it would be most appropriate to host this call via a live earnings webinar and Q&A session.

It has been a momentous quarter for the company, to say the least.

We closed our public offering last month, raising total gross proceeds of $197 million before commissions and fees.

And from an execution standpoint, Q3 was by far the strongest quarter in the company's history.

Our results have exceeded previously raised guidance with solid growth across every KPI we track.

Revenues were up 47% to $61 million.

That's well ahead of the guidance range we provided of $52 million to $55 million.

Our business is really comprised of 2 components: subscription revenue, which was up 64%; and advertising revenue, which was up an amazing 153%.

Ad revenue for the quarter exceeded 12%.

And to put that into context, 2019 ad revenue represented roughly about 8%.

So you can see why we're so excited about the quarter and about our guidance in Q4 and for full year 2021.

Paid subscribers at quarter end totaled 455,000, and that's 58% above the 288,000 last year.

Net additions came in at 167,000.

That's up almost 100% year-over-year.

Acceleration of net adds also came in at a lower SAC, which was a brilliant job by the team given the fact that we were already really efficient.

We are encouraged with the increase in market share from a net adds perspective relative to our peers.

Margin expansion for the first 3 quarters of the year also came in ahead of estimates.

In January, I said that our goal was really to expand our margins by about 150 basis points on a quarterly basis sequentially going forward.

Adjusted contribution margin came in at a whopping 16%, and that's really due to the timing of content drops and the addition of Disney and ESPN.

But from a normalized basis, that's roughly about 10% to 10.5% .

And this result was really driven by 3 things.

We had a price increase of $5.

We had better merchandising.

And I think the team did a phenomenal job selling 800,000 attachments versus 235,000 attachments in the year prior.

That's an increase of 240% year-over-year.

And advertising sales, which I've already highlighted earlier, clearly plays an important role in margin expansion.

At the end of the day, we made some really bold moves in the quarter, and that really speaks to our ability to leverage our proprietary data.

And to -- it also speaks to our -- the quality of our execution.

As you all know, it's tough to expand margins while growing your sub base at this current pace.

The tailwinds have never been stronger.

FUBO sits firmly at the intersection of 3 megatrends: The first is the secular decline of traditional television viewership; the second is the shift of TV ad dollars to connected devices; and the third is online sports wagering, a market we absolutely intend to enter.

Our growth opportunities are numerous, and there are great many reasons for us to be optimistic given the optionality in the business.

Since some of you are new to the story, it might be helpful for me to provide a quick background on who we are.

In 2015, we founded FUBO, introducing a live streaming platform to serve the needs of U.S. soccer fans that were unable to watch international soccer leagues.

We quickly learned that soccer fans wanted 3 things: They wanted a greater breadth of sports and entertainment content; they wanted an intuitive user experience; and they, of course, wanted exceptional value.

In a very short period of time, FUBO is becoming a leading sports-first cable TV replacement service for the entire family.

We offer a wide variety of premium sports and entertainment content at a very affordable price with over 110 channels and 50,000 live sporting events.

And that also includes both the regular season and the post season for leagues like the NFL, the NBA and the NHL.

Supporting our offering is our proprietary data and technology platform that we really have optimized for live TV and sports.

Our platform has enabled us to regularly offer new features and functionality for our subscribers.

To the best of my knowledge, we are still the only virtual MVPD to stream live sports in 4K.

As a matter of fact, we stream Thursday Night Football as well as most recently, the World Series that's on Fox in 4K.

We're also the only virtual MVPD where customers can watch up to 4 live streams simultaneously through our recently updated multi-view feature on Apple TV.

We believe our platform offers a more differentiated, a more personalized premium viewing experience for sports apps, and that's really reflected in the recent reports highlighting customer satisfaction relative to our peers.

And it also is reflected in our app ratings.

And most importantly, it's reflected in our improving retention.

We are indeed expanding into the online sports wagering market.

Our goal with wagering is to develop a very robust revenue stream.

We believe wagering could be as valuable as our growing ad sales business, and FUBO has an opportunity to combine a sports wagering service with a leading live sports streaming package.

We've nailed down our strategy, and we expect to share tactical details as appropriate.

As you will hear from Simone shortly, the outlook for Q4 is extremely solid.

We are raising full year guidance not only for 2020 but also for 2021.

The growth of our advertising business, coupled with our strong attachment rates on value-added services, such as our Cloud DVR and the ability to stream on multiple devices, continues to improve margins.

The team is laser-focused on driving both the top line growth and making progress on our path to profitability.

We believe FUBO's differentiation in the marketplace, which is sports-focused programming and a tech-first user experience firmly positions the company for long-term growth and massive success.

And with that, I will turn it over to my colleague, Simone.

Thank you, David, and good afternoon, everyone.

We're very pleased with our third quarter results and are excited to be publicly traded on the New York Stock Exchange.

Before we address your questions, I will walk you through a few financial highlights and discuss our forward-looking guidance.

Total revenue was $61.2 million in the third quarter, an increase of 47% compared to the pro forma revenue in 2019 and an increase of 71% if we exclude FaceBank AG's revenue last year, the business that we then sold in July 2020.

This growth was driven by continued strength across all revenue segments.

Subscription revenues increased 64% year-over-year, and advertising sales increased 153%, accounting now for 12.3% of total revenue in the quarter.

In summary, we continue to focus on both the top line growth and progressing on our path to profitability.

Now looking forward, in conjunction with our strong quarter and continued momentum in the business, as David mentioned, we're raising guidance for the fourth quarter 2020 as well as for the full year 2021 as we do not expect the legacy FaceBank business to generate revenues in the fourth quarter.

And my comparison year-over-year will now be to the premerger FUBO numbers in 2019.

We expect the fourth quarter revenue to be between $80 million and $85 million, an increase between 51% and 60% compared to 2019.

We also expect to end the quarter -- fourth quarter with paid subscribers of between 500,000 and 510,000, an increase of 58% to 62% year-over-year.

We've increased further our guidance compared to priorly provided guidance.

Full year 2020 revenues is expected to be $244 million to $248 million on a pro forma basis, an increase of over 65% year-over-year.

We expect our growth in 2020 to continue into 2021, where we are raising now by $15 million our previous revenue guidance to a new range of $415 million to $435 million, projecting a growth of over 70% year-over-year.

In summary, we continue to be very excited about our future growth opportunities and remain focused on driving long-term growth and reaching profitability.

With that, let's turn the call over for questions.

Brinlea?

Thank you, David and Simone.

At this point, we're going to turn the call over to our analyst panelists for some Q&A.

Let's start with Kevin Rippey at Evercore.

I guess on the first one, given the subscriber momentum you saw in 3Q, can you help just us think about how much of that came by way of better gross additions versus reduced churn?

And perhaps give some color around how much the addition of ESPN contributed to that.

And then a second question, just on the longer term as, David, you mentioned on the sports gambling opportunity.

Is there a certain subscriber scale that you have in mind before getting more aggressive on that front?

Or just helping us think about the time line would be really interesting to hear.

Yes, sure.

So for the first part of your question, I think the answer is all of the above.

We benefited from an increase in subscriber accounts.

We benefited from the better retention dynamics, and that was obviously evident in our numbers.

As -- with respect to your wagering question, look, we're super excited about wagering.

I would say that we've already started executing on our strategy.

And at the appropriate time, we'll provide more details.

But the way we think about wagering is we look at it from a 3-bucket perspective: we have an acquisitions advantage, we have an engagement advantage and we have a monetization advantage.

So for acquisitions, you should think of it that we're starting with 500,000 paying subscribers.

And what you've heard from our ability to sell attachments this quarter, we think that we're going to be able to also sell in a lot of wagering opportunities.

Number two was on the engagement front.

We have over 50,000 sporting events on the platform, and we're getting people to watch over 120 hours per month.

So there are going to be ample opportunities for us to really sort of drive that forward.

And then I think the third piece is the monetization advantage.

Obviously, getting players to play is important.

But think about the value from a retention perspective, getting people to churn out less and also from a monetization perspective in terms of advertising sales.

So we feel like we have everything that we need to sort of build a sizable business around this.

And as I said, we're already executing on that strategy.

Our next question comes from Dan Salmon at BMO.

Maybe I'll take a turn, David, asking a little bit about advertising.

You mentioned the over 100% growth here this quarter.

I think we -- all of us listening have been getting lots of questions about connected TV growth and the shift to that over the COVID period in particular.

So could you maybe just dig in on that a little bit just on the short-term trends and what in particular you're seeing drive the outperformance?

And then just maybe real it on back, big picture.

And you brought in recently a new executive in Diana Horowitz to lead the advertising business.

What's just your vision for what your platform should be and the major milestones you want to hit as you build it out over the next few years more?

Yes.

Well, thank you, Dan.

That was a good question.

Look, at the end of the day, COVID really just accelerated what's been happening prior to this.

There's been a shift of TV ad dollars to connected devices well before COVID.

We're starting to see the impact of that on a normalized basis in the sense that it really hasn't impacted our business in Q3.

With respect to Diana Horowitz, we're continuing to build out a team around advertising.

We're also starting to develop more ad tech to be able to provide more addressable opportunities that we think will ultimately drive up our CPMs higher.

And also, just the number of viewing hours that we're seeing also continues to uptick, albeit below what we saw in Q2.

But certainly, we're able to maintain the current trend that we saw in Q1 going into Q4.

And our next question comes from Jason Helfstein of Oppenheimer.

Maybe I'll dig in a bit more on the marketing side and subscriber growth.

So you did highlight lower SAC.

That being said, if we calculate sales and marketing per average sub, which does have obviously other items, it was up a lot in the quarter.

So just maybe talk about leaning into marketing, particularly around fourth quarter and into next year as you have a healthier balance sheet.

And then as well in that sales and marketing line is investment in your sales team to do more direct sales.

Maybe just how should we be thinking about that line broadly kind of fourth quarter next year now that you've got a stronger balance sheet?

Yes.

Look, I'd say -- first of all, Jason, thank you.

That's a great question.

If you look at our annual spend so far through 3 quarters, we spent about 17.5% of total revenue on marketing to date.

So we're well below what a growth company would be spending in terms of growth.

In terms of ad sales, I think, again, we're building out our team.

And subscription businesses require investments in the upfront to be able to leverage the LTV going forward.

Simone, I don't know if you have anything to add to that.

No.

In terms of the performance there, it's exactly as you mentioned, David.

I mean the expansion that we're seeing is quite important.

I mean we're always managing, and we've been able in the past to manage in a very measured way the way we push the marketing spend to ensure that we kind of are very efficient in acquiring subscribers, and we'll continue to do that going forward.

Yes.

And just to add onto that on -- as it relates to Q4.

Again, we are well within our estimates when you look at just the sort of the marketing spend associated with our subscriber acquisition cost.

Our next question comes from Laura Martin at Needham.

Great.

Maybe a couple of follow-up.

Kevin has led with 2. First of all, we argue that your cost -- your content costs are lower than your competitors because a much larger percent of your subscribers view sports every week, and so that $8 you're paying a month for ESPN is actually spread more equally over your subs.

So could you give us, in this really heavy sports quarter of the third quarter, what percent of your total subs were watching sports every week and therefore, amortizing your content costs over more?

And then, I guess, the second one is on churn.

One of the things you've been working on is getting that SAC, which was $60, at least last quarter, to extend into 2 or 3 extra quarters come for the sports day for the entertainment.

So I'm interested in that metric.

Like have you extended by another 2 weeks or 1 week?

Can you give us some idea of how you're thinking about lowering churn?

But I'm actually more interested in the vertical number, which is when you spend money on SAC, how many customers come for this soccer season, next soccer season, next soccer season because maybe that's the right way to think about your churn?

And I'm wondering if you have any maybe guidance about that vertical churn number as well as the number you keep track of, which is the horizontal through time, churn and whether it's falling.

Yes.

So Laura, thank you.

That, again, is a great question.

We obviously focus on vertical cohorts as well.

We see a significant amount of reactivations typically at the start of every season, whether it's a soccer season, an NFL season or college football season.

So reactivations typically come in between 25% and 35%.

So we are looking at our churn both horizontally and vertically, and I would say that is the correct way to look at it.

And we favor our marketing budgets that way as well.

You'll see us spend more at the front of the season and less towards the end of the season.

So in terms of marketing expenditure for Q4, October was also a big month because, as you know, some of the college football has started to return.

And so the teams are working hard to ensure that we're able to manage our subscriber acquisition costs.

And as I said before, we're doing a really good job really honing that in.

And let's stop forget, Q3 was a big political quarter.

So with political coming in, you're going to see a lot of pressure on the amount of inventory that's available, and you're going to see pressure on pricing.

So again, we did a really good job this quarter adding a significant number of net additions.

It's roughly 100% above last year and coming in on a subscriber acquisition cost side with roughly below -- 3.5% below where we did last year.

So again, we're very excited about that, and the team has done a phenomenal job.

Let's move forward with Darren Aftahi from ROTH Capital.

Nice results and hope you're well.

Two, if I may.

So the -- we already talked a little bit about this, but the Trade Desk call was extremely bullish, in particular, on the connected TV space.

And they even called out how a large e-commerce brand shifted about 10% of their linear budget to connected and saw a really nice return.

So with that in mind, I think maybe one of the underappreciated parts of your story is the advertising segment.

But just give us a little bit of a glimpse on where you think that ad business can go longer term and what, if any, kind of accelerants or headwinds you see in terms of getting there.

And then just a little bit more granular on your revised sub count guidance for the fourth quarter.

We're about midway through.

How much visibility do you guys currently have on that 510 to 5 -- 500,000 to 510,000 figure?

Yes.

So I'll take the first part of the question.

Look, I think from an advertising perspective, we provided guidance at the midpoint of $6.50 of advertising ARPU per customer.

We ended with just over $7.50.

So we feel very good about our ability to monetize our customer base.

Over the long term, I think we provided guidance in our S-1 and during our road show that we think the long-term opportunity is roughly about $20 per month on a net basis.

When I say on a net basis, that's after fees to some of our third-party vendors.

So there's a long way to go here.

We've got ample room in terms of where we are from a CPM basis.

All of our deals currently today are done programmatically.

And again, we're right now investing in our data.

We're investing in our ad tech, and our goal is to really productize a lot of our data.

We think that there's an opportunity to really grow that business significantly over the next, call it, 18 to 24 months.

Yes.

And jumping on top of the second half of the question, Darren, in reference to the subscribers numbers we have in our fourth quarter guidance.

Clearly, we track subscribers on a regular basis, and the way -- the team and all of us are very focused on that metric on a daily basis.

The numbers that we're projecting here in the guidance is clearly the one we're comfortable with at this point and shows the expectation of growing sequentially every single quarter year-over-year comparing to the prior year.

So I think it's a very solid number showing growth, and we feel pretty good about that.

Yes.

And the last thing I'll just add is that, obviously, there's visibility.

We're a subscription business so there is some level of predictability in our subscriber revenue and in our subscriber count.

And as I said, we're just seeing the benefits of college football, which we didn't see normally that we would in third quarter.

Jason Helfstein from Oppenheimer.

So maybe just digging a bit deeper on advertising, David.

How are you thinking about long term, how much of advertising should be direct sales?

How much should we add to it?

How are you just thinking about kind of maybe the evolution of the ad business over the next 2 years?

Great question, Jason.

I think what's important to note is that this company is very young.

It's a 5-year old company.

This is a cloud-born company.

Everything we do in the cloud, everything we attempt to do is automated.

And therefore, when we look at advertising and ad tech, the goal here is to really automate our capabilities.

And so if you're thinking about how much we're going to invest in our direct sales team, obviously, it'll be a fraction of what a company that was more boots on the ground would invest.

So again, we're looking to do a lot of this programmatically through private marketplaces.

And eventually, we'll be able to build out a self-service platform when you think about the opportunity over the long term.

And I saw Laura Martin from Needham had a question.

You brought up political.

I'm dying to know.

Roku was saying 2% or 3%.

Trade Desk said 5% or 6% of their CTV.

Did you guys see a benefit from political in the third quarter?

Yes, absolutely.

I mean FUBO was known for live sports and live news, both of which are a sport.

So no, I think we benefited tremendously from political.

I would say ours is probably closer to about 15% just given the number of news channels we have on the platform.

And as you know, FUBO is about live television, and this is the type of content that is certainly consumed live.

And I think I believe Kevin Rippey at Evercore had a follow-on question.

Yes.

Just one more for -- well, David or Simone, feel free to take it.

But just on the subscriber acquisition cost trajectory, can you like just identify maybe the 1 or 2 biggest drivers in the decline you saw?

And how sustainable are those?

Simone, would you like take that?

Yes.

Yes.

Look, I think in terms of the seasonality of the -- our growth in subscriber and ability, we have to target our effort on the acquisition side.

As we discussed before, I mean, you know that ultimately, our abilities to tune in and out that effort and with the strong demand that we've seen in the market opportunity in the last couple of months and going forward in the fourth quarter, we clearly are upping that effort in a very pointed basis, very efficient basis.

So as -- a lot of that is focused on digital, very targeted acquisition cost medium, very diversified.

And as we get -- we grow bigger and larger, we also have the opportunity to kind of leverage more organic expansion and upside from an acquisition standpoint.

So clearly, in the fourth quarter, we continue to kind of progress in this investment and kind of ensure that we get the return that we're targeting in terms of subscribers acquisition.

And then from there, the second -- first half of the year is more seasonal.

We're working on opportunity to kind of mitigate the seasonality.

But that's when we're going to play a little more conservative or assessing more the opportunity to kind of spend the money or retain that to kind of retain our subscriber basis.

Dan Salmon at BMO.

David, you mentioned the attachment rate and the merchandising of the product and pricing these days.

I'm mostly interested in the attachment rate.

What's the short-term sort of runway for that?

What are some of the key strategies that you're implementing in the merchandising of the product to drive that right now?

And like I said, what's the runway on that type of opportunity that seems to be fairly material right now?

Yes.

So our attach rate, Dan, was about 1.2.

That's now just exceeded about 1.8.

The team is very data-driven.

I think we've said that this company collects about 21 billion data points per month.

And the team is A/B testing on a daily basis.

And we've got about 400 landing pages with different offers, and they continue to sort of tweak those.

And again, you're going to start to see new types of products coming out.

And we're also leveraging the marketing channels to see where those folks are coming in and if there's any way for us to really do more of that cohorting that allows us to really improve that attach rates.

But we're very happy with our current trajectory, and we think that continues over the long haul.

And as you may have read in the shareholder letter, we've also added Starz and Epix.

So that's yet another way that we think we're going to be able to continue to drive the attach rate.

And I believe Darren Aftahi Aftahi from ROTH Capital had a follow-on.

Yes.

I know you're not giving too much detail on wagering today.

But David, I'm just kind of curious what your thoughts are in terms of how symbiotic sports and wagering go together, what kind of impact that would have on retention rates long term.

Yes.

Thanks, Darren.

Look, it's a great question.

I think it's clear we are a sports-first pay-TV replacement service.

People come to FUBO for the sports and so we have a very credible brand.

I think that it enhances the value of our entertainment package.

It also allows us to continue to create a lot of interactivity and connectivity between consumers as well.

So we're very focused on that.

As I said, we started executing against our strategy.

There's a lot of advantages that we have.

And look, we're looking forward to starting to make announcements in the coming months.

I believe that is it from the analyst Q&A perspective.

Before we end the call, we wanted to address some investor questions that were submitted in advance to our IR inbox.

Our first second question, can you talk about the competitive landscape?

Why choose FUBO?

Yes.

So thank you, Brinlea, and thank you to our investors that have been writing in.

Look, at the end of the day, FUBO is a cable TV replacement service.

Our motto is come for the sports, stay for the entertainment.

We've differentiated via our sports branding.

And the way we look at competition, really, is that this is not a zero-sum game.

There are 80 million people that still have a cable service, and we're looking to attract those consumers.

So at the end of the day, I think we're all going to benefit from the secular trend.

And one final investor question.

What do you intend to do with the proceeds from the IPO?

I'll take it.

So in terms of the IPO, as you know, clearly, we're very happy and we have been very pleased with the results of the IPO.

We raised $197 million in gross proceeds upping or upsizing our offering -- initial offering and also sold a good portion of the overallotment.

So as we discussed during the road show and the IPO process, our goal is to ensure that we can now capitalize properly the business to funnel and further enhance our growth and speed of execution.

So the main usage for that capital is going to be actually inside the working capital to ensure that we continue to kind of progress and expand the business in a rapid pace.

Yes.

Just to add to that, look, we're very excited.

We had an amazing Q3.

We think we're going to have a very good 2020, which is very difficult to say coming out of COVID.

I think there were many reasons why this could have failed.

But again, kudos to the FUBO team.

They've done a tremendous job this year.

And we're going to continue to build out our team.

We're going to continue to build out our technology, and we're going to continue to make bold moves throughout 2021.

Thank you.

Thank you.

On behalf of the FUBO team, thank you for joining us today.

We appreciate your ongoing support and interest and look forward to keeping you updated on our progress.

Thank you very much.

Thank you very much.