Sports fans know a bad quarter when they see one, and fuboTV (FUBO 9.35%) certainly got blown out through the first three months of 2021. Shares of the live-TV streaming platform tumbled 21% in the first quarter, but if you bump the starting line by a few weeks you'll find that fuboTV has surrendered more than half of its value in just the past two months.
It's not a bad quarterly report that has tripped up fuboTV. It actually exceeded expectations on most fronts when it offered up fresh financials in early March. The fast-growing streaming specialist just happens to be at a cruel intersection where folks are dumping media stocks, growth investments, and recent IPOs. FuboTV can check off all three of those boxes, but it's a prime candidate to bounce back now that the second quarter is getting started.
In a world where the largest cable TV providers measure their customers in the tens of millions, fuboTV with its 547,880 subscribers is easy to lose in the crowd. There are also concerns -- partly on target -- that traditional cable or satellite television giants and the hungry live-TV streaming platforms that hope to supplant them both suffer from a cutthroat niche. Content creators hold all the leverage here, and when they push through rate increases it's the subscribers who wind up getting stuck with the bill.
There's a tug-of-war on Wall Street when it comes to fuboTV. Needham's Laura Martin boosted her price target to $60 in December. A month later it was LightShed's Rich Greenfield shrinking his Street-low goal for the shares to $6.50. The stock would have to nearly triple to hit the bull mark or shed more two-thirds of its value to prove the notable naysayer right. Given the stock's insane volatility through its first six months of trading it may very well hit both marks, but my money's on fuboTV ultimately rising above the noise.
Retreating shares notwithstanding, fuboTV has done a good job of vanquishing bearish arguments. The second-most bearish analyst on fuboTV -- Kerrisdale Capital with a $10 price target -- initially argued that consumer interest in fuboTV had collapsed since early November. What did fuboTV do? It wound up raising its 2020 year-end subscriber four times between October and March, proving that business didn't slow down as one worrywart was predicting.
Greenfield is one of the smarter media stock analysts out there, but even he seems to be repeating bearish arguments that don't jibe with reported numbers. Greenfield calls fuboTV the best short that LightShed has identified, arguing that it has no leverage against the programming behemoths running larger rival services.
The fallacy there is that fuboTV's model is scalable. Programming costs are growing slower than its revenue. It began posting a positive contribution margin in late 2019, widening to a double-digit performance in its latest quarter. It's not just subscription hikes at work here. Ad revenue per user has nearly tripled over the past two years to a niche-high of $8.47 a month -- boosting total average revenue per user to more than $69.19.
It's true that fuboTV isn't perfect. It positions itself as a "sports-first" live TV streaming service, but it has some serious gaps in its coverage. It also lacks the financial resources of some of the tech giants and media stocks it's competing against for subscribers. However, it's also nimble enough to make a pair of recent acquisitions that will help it launch a fantasy sports component this summer and an online sportsbook by the end of the year. These are gambles -- in every sense of the word -- but if just one of the two bets pays off it should help with retention in an industry where churn is higher than it should be.