Sports-centric video streaming plus sports gambling sounds like a winning combination, but that hasn't been the case for shares of FuboTV (NYSE:FUBO). The live TV streamer has seen its stock price collapse since peaking late last year. The stock now trades below $20, down two-thirds from its 52-week high.
Lack of growth hasn't been a problem. Revenue nearly doubled in the fourth quarter of 2020 to $105.1 million on an adjusted basis, with subscription revenue up 91% and advertising revenue up 157%. The number of paid subscribers soared 73%, and the number of content hours streamed jumped 66%. FuboTV expects sales to jump as much as 80% in 2021, driven by an anticipated 41% increase in its subscriber base.
There's plenty of story for investors to latch onto as well. FuboTV focuses on sports, which differentiates it from other streaming platforms. The company is also planning to jump headfirst into sports gambling, with a tight integration with its streaming platform.
There's also the prospect of improved monetization. FuboTV generated $8.47 per subscriber from advertising in the fourth quarter, up 52% year over year. That was on top of subscription fees averaging around $60 per subscriber. While gaining more subscribers is one growth avenue, boosting advertising revenue is another.
Despite all of this, the stock has been a train wreck in recent months. There are a few reasons why investors may be shying away from FuboTV stock.
The economics aren't great
FuboTV spends more on content and delivery than it generates from subscriber fees. The company generated $184 million in subscription revenue in 2020, but it spent a total of $233 million on subscriber-related expenses and broadcasting expenses, not to mention the rest of the company's operating costs. Advertising revenue improves the picture a bit, but not by all that much.
One problem is that content provider distribution rights, which represents the bulk of the company's subscriber related expenses, are generally charged per subscriber. Adding more subscribers produces more revenue, but it also raises FuboTV's costs. Advertising revenue will help, but it's still a small percentage of total revenue, and there's a limit to how many ads the company can throw at its paying subscribers without driving some of them away.
The losses are big
FuboTV reported a net loss of $570 million for 2020. That figure included one-time impairment charges totaling $249 million, but even backing out those charges leaves the company with a gigantic net loss. Given that subscriber costs will rise right along with subscription revenue, profits will likely be hard to come by.
FuboTV does report a profitability metric it calls "adjusted contribution margin," which was positive 10.1% in 2020. The problem with this metric, as I outlined in a previous article, is that it's not really a measure of profitability. Instead, FuboTV's adjusted contribution margin is just a proxy for revenue growth. The faster the company grows, the higher the margin, no matter the underlying economics. If growth slows, that margin will slump.
Sports gambling may not be a panacea
Sports gambling is gaining traction as states legalize online sports betting. New York legalized mobile sports betting earlier this month, for example, although only two companies will be allowed to operate platforms via a bidding process.
FuboTV is aiming to leverage its streaming platform to drive sports betting revenue. The company is planning free-to-play predictive games for the third quarter of this year and the launch of its sportsbook in the fourth quarter. Full integration with its streaming platform will come later. Ultimately, this could boost subscriber engagement and further improve advertising revenue as well.
Whether any of this works remains to be seen. There will be plenty of competition, and the sports betting industry is highly promotional. FuboTV already has users on its platform, but it's unclear how many of those users are interested in gambling.
Sports gambling could become a nice revenue stream for FuboTV, but the company's losses are so big that it may not make much of a difference.
Growth, but not much else
FuboTV is certainly succeeding in winning subscribers, but those subscribers aren't going to produce any profits for the company anytime soon. The sports betting initiative may eventually pay off, but it's far from a guarantee. And FuboTV's penchant for meaningless profitability metrics is, in my mind, a big red flag.
FuboTV is still worth around $3 billion, or more than 6 times expected 2021 revenue. That's a high price to pay for what looks like a pretty lackluster business to me.