If you love watching sports, then fuboTV (FUBO -1.86%) might have just the subscription streaming package for you. The company prides itself in having a ton of options, including ever-popular match-ups from the National Football League, along with sports for a more niche audience like European soccer (niche in the U.S. at least).
By compiling so many sports assets into one service, fuboTV has created an impressive product. But these programming options aren't exclusive to the company, though exclusivity is something the company is exploring for the future. But for now, you could say fuboTV is a platform for streaming content that belongs to someone else.
But that doesn't mean this company doesn't have valuable assets of its own. fuboTV actually has a very valuable user base of 545,000.
Its most valuable asset by far
The company kicked off 2021 by announcing preliminary results for the fourth quarter of 2020. And the company caught Wall Street by surprise with impressive subscriber growth. It expects to report 545,000 paying subscribers when it finalizes fourth-quarter results. For perspective, fuboTV had previously guided for only 500,000 to 510,000 subscribers.
Assuming it hits that guidance when it reports official figures on March 2, that would represent 73% year-over-year growth. But this impressive growth rate isn't what makes fuboTV's audience so valuable.
As of the third quarter of 2020, fuboTV's average revenue per user (ARPU) was $67.70 per month. But again, that's not what makes this user base a valuable asset, either. Keep in mind that almost 90% of the company's monthly ARPU comes from its subscription packages. However, these subscriptions actually come at a loss to fuboTV with little hope of making them profitable.
So what does make the company's audience its most valuable asset? In the third quarter, its users streamed an average of 121 hours for the quarter: a little more than an hour per user per day, an increase of 20% year over year. That's a large, engaged crowd, and if it wasn't for this fact, I don't think this stock would have a shot at being a winner.
What's so valuable about that?
If fuboTV only made money by selling subscriptions, it would be fair to question how much long-term shareholder value the company could create. But since it does have 545,000 engaged users, it has an opportunity to monetize them with other higher-margin offerings.
For starters, fuboTV's ad business is really starting to take off. In the third quarter, the company generated roughly $7.50 per user per month in ad revenue. And management believes it can eventually reach $20 per user per month, net. In other words, after it's paid relevant third parties, it hopes to keep $20. If you extrapolate that over a year for 545,000 users, ads could be making the company almost $131 million annually. And just imagine if fuboTV keeps growing its user base as fast as it has recently.
Advertising revenue, therefore, needs to play a key role if fuboTV is going to be a good long-term investment, but Wall Street isn't buzzing about ads. Everyone is getting excited about the company's push into sports betting.
In December, fuboTV acquired Balto Sports at an undisclosed price to speed up its move toward sports betting. In the corresponding press release, fuboTV noted that Balto "develops tools for users to organize and play fantasy sports games," which should allow the company "to leverage its own proprietary technology along with Balto’s contest automation software to launch a free to play gaming offering." Then last month, the company acquired an actual sports-betting platform called Vigtory (also with undisclosed terms), to further push the development of its future product. Co-founder David Gandler says this creates "a flywheel opportunity" -- if you like watching sports, then you probably like betting on them, and vice versa.
Wall Street analysts are excited about these efforts with several issuing buy recommendations for fuboTV stock for this reason. But investors should keep in mind that management plans to launch free sports games first before eventually delving into the moneymaking opportunity of wagering, so this will take time.
In my opinion, if you're investing in fuboTV today, you're investing in the potential of its user base, the most valuable thing the company has. Since it's unlikely that streaming subscriptions will ever create meaningful shareholder value, the user base is key to the company monetizing its platform with better opportunities like advertising and sports betting.
However, this makes fuboTV a growth stock that's a little too speculative for me. Ad revenue is currently such a small income stream -- just 10.5% of total revenue through the first three quarters of 2020. And sports betting doesn't bring in any cash at all right now. There's simply too much riding on these two early-stage strategies for my comfort, so I'd personally wait until they're showing substantial progress before making an investment.
This article represents the opinion of the writer, who may disagree with the "official" recommendation position of a Motley Fool premium advisory service. We're motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.