Earnings Roundup: FuboTV, Unity Software, and Electronic Arts

FuboTV's (FUBO -2.80%) revenue more than doubled in the first quarter. Unity Software (U 1.49%) sells off despite improving numbers in its first quarter, and Electronic Arts (EA 0.30%) wraps up its fiscal year and offers upbeat guidance for the new one. In this episode of MarketFoolery, host Chris Hill and Motley Fool analyst Maria Gallagher analyze those stories and share their favorite video game.

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This video was recorded on May 12, 2021.

Chris Hill: It's Wednesday, May 12th. Welcome to MarketFoolery. I'm Chris Hill, with me today, Maria Gallagher. Good to see you.

Maria Gallagher: Nice to see you too.

Hill: We've got more video game earnings, we've got software earnings. We're going to start with sports. Shares of fuboTV were up more than 12% this morning after the streaming sports company raised guidance for the full fiscal year. This was after revenue more than doubled in the first quarter. How real is this rise in the stock? Because I'm not hitting fuboTV, but my first thought when I saw this, was I wonder how much of this is a short squeeze.

Gallagher: So it's interesting, they grew their subscriber base to 590,000 paid subscribers, their total revenue, like you said, grew 135% year-over-year to $119.7 million. Their advertising revenue grew actually 206% to $12.6 million. Their subscription revenue increased 131%. So, it's reaching a lot of subscribers, but their overall base is still not massive in the way that you might expect from some other streaming platforms. If you think of streaming, a lot of people will think of YouTube TV, or Hulu or Netflix. So this is still a very small player in this space and like you said, it really focuses on sports. It has a lot of sports offerings, it also has 43 of the top 50 networks and 112 channels. So theoretically, it's for everyone, but definitely for that sports fanatic, NFL nuts who's going to be interested in it. They mentioned launching a betting platform as well. Like I said, they have a pretty small base. Their market cap's only $2.4 billion in a really massive area with a lot of tailwinds as people are getting more and more into cord-cutting. You still see about 78 million people in the U.S. with legacy cable. So there are still people who need to come over to the other side and cord cut. It was a really, really stellar quarter, really stellar start for fubo, as people see that pent-up demand going back into live sports. But because that base is so small, it's really impressive, but it's still not the staggering number to come to associate with a Netflix or a Hulu.

Hill: It really is going to be interesting to watch where sports goes in the streaming world over the next five years or so. When you think about, for example, Amazon Prime, going after the exclusive rights for Thursday Night Football with the NFL. I'm wondering if you look at fuboTV, as you said, the market cap's $2.5 billion. Do you think this is a stand-alone company in three years? Because it seems like if they get a decent amount of success, maybe someone buys them. I don't know. I have trouble looking at fuboTV and imagining what the future looks like beyond the next couple of years.

Gallagher: Yeah, I would agree with that because it started as a soccer streaming platform, which I think is interesting and so the only thing that they have the exclusive rights to right now, is the South America versus Qatar World Cup 2022 qualifier. So they have a lot of exclusivity within soccer. But in America, at least obviously you're looking at a lot of people looking at football and baseball. So I think that it's good if you can have this niche, but if you're paying $65 a month, I don't know how big that theoretical base is that's going to say, "Well, I really want to watch soccer. So I would imagine they're a pretty good acquisition target, and yeah, I wouldn't say that I feel strongly that they're going to be the number one place the NFL would want to go to and say, "I'm going to be exclusive with fubo," that would be a huge win for them. But just realistically, I don't know what they would be offering to the NFL, that would make that happen as opposed to what Amazon can offer. When you're going up against Amazon, Hulu, or just Disney and Netflix, I think it's a tough game to be a small competitor.

Hill: I think history has shown that what the NFL is interested in, is a check with a lot of zeros on it. [laughs] I don't know that fubo has that many zeros to put on their checks that they're writing. Let's move on to Unity Software. First-quarter revenue rose 41%. That was higher than expected. Their loss for the quarter was smaller than expected. Stocks are down a little bit today, but I'm not sure I get why that is when you consider how surprisingly good this quarter was, and also this is a stock that has really been knocked down. This year to date, the Unity Software shares are down more than 40%.

Gallagher: Yes, with Unity, it's interesting. When people think about software, they are looking for these staggering growth numbers and Unity repeats over and over, they're saying we're a long-term steady grower of 20%, 30%, maybe 40%. This was our tenth consecutive quarter of +30% revenue growth, but they're saying, they keep trying to warn people, were not coming in with 80% growth. That's not our plan, that's not what we're doing. But I think that the expectations are still baked in that they are going to be this massive grower, so you see that disconnect and thinking. But it was a great quarter, their revenue, like you said, was up 41%. They raised their 2021 revenue outlook. Their Create solutions were up about 51%. Their Operate solutions were up about 40%. Their customers generating over $100,000 in revenue, was up to 837, and their dollar-based net expansion rate was 140%. 

Something that I want to highlight that's really critical for Unity that I think saw a lot of positive momentum in this past quarter is their ability to create outside of that traditional gaming platform. New customers came in and household appliances, healthcare, aerospace, government, and retail. For example, they highlighted [...], which is a development on Unity for existing in future products which allow surgeons and medical educators to train virtually in these 3D environments. A big part of the Unity growth story is going to be outside of that core gaming platform. It was a really solid quarter from all the traditional metrics, and I also think it was a really positive quarter in terms of showing we can be useful outside of this core platform, and we are consistently proving that we can be useful for more people than you might have thought going in. I was impressed with the quarter all around.

Hill: We talk from time to time about the expectations from Wall Street analysts versus the expectations that any given company's management sets for itself. Pretty impressive that the Unity Software management team has been very consistent for the last couple of years in terms of saying, this is what we're going to do and then delivering on that.

Gallagher: Yeah. I find it impressive. I find it very impressive with management. You want to look at management that's consistent, and that you can trust. I think that they are building up that relationship with investors saying, this is what we're saying we're going to deliver and we keep delivering. If you see years and years of 30% revenue growth, if you look at Starbucks as an example of a company that can just consistently iterate and consistently hit it out of the park over and over again when they say 30%, they do 30% and they keep ongoing. I think it's an impressive growth rate. If they can keep it up, they have 10 consecutive quarters of it, and I think the management is being honest and I respect it.

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We will combine, in a way, sports and software with Electronic Arts, which wrapped up its fiscal year with a strong fourth quarter. Profits were solidly higher than expected, their revenue looked good too, their forecast for the full fiscal year was upbeat, and there appears to be no love whatsoever for this stock, which is down a couple of percent to date. They seemed like a good end to the year.

Gallagher: Yeah. I think people, it was solid. Their net bookings were up about 15% for the year. Their revenue was up about 2%. They did some acquisitions this year, which was interesting. They acquired Glu Mobile, which people might be familiar with from Kim Kardashian, Hollywood, they did a couple of acquisitions. They delivered 13 new games and had 42 million new players join their network. FIFA '21 has more than 25 million console players. Apex Legend has more than 100 million players to date. They had more than 12 million weekly average players, and the Sims had almost 36 million players, which is their sixth consecutive year of growth. It was solid around a lot of its platforms. They talked about moving forward. Their growth is going to be coming in sports, and this increased shift to digital purchasing where you see 62% of units are sold digitally now, and this growth in mobile, which is what you see with a lot of their acquisition strategy since getting more into that mobile space. It was a good quarter, it was a good year. They delivered what people expected them to do. I was generally impressed with the year when I was reading through this.

Hill: It's interesting because when you look at the video game industry, you can probably make a decent case for Electronic Arts having greater brand awareness than some of the other businesses out there. Take Two Interactive, even Activision Blizzard, the tie-in with sports that are so popular on a global level, and yet when you look at the stock performance, it really trails the group. It is just over the past year, over the past five years. It's not that it's down, you've definitely made money over time with Electronic Arts. You just haven't made as much as you would have if you owned Take-Two or Activision, Blizzard or even, for that matter, Zynga.

Gallagher: It is a little bit bigger. Take-Two is about an $18 billion market cap. I think EA is about $40 billion, so it is a more well-known brand, it's more established. I think their games have more of those legacy games. With FIFA, I've known people to play FIFA my whole life. I think that they're in that legacy space, But with these acquisitions and trying to grow more in mobile, I think that that's going to be interesting to see how they do that moving forward. If you compare them to Zynga and see if there's any growth that they can see there, and in mobile moving forward.

Hill: You are not a video game person, are you?

Gallagher: I like Mario Kart.

Hill: As do I.

Gallagher: But I wouldn't say I'm a video game person, no.

Hill: But I forget who I had this conversation with recently, but we were talking about just the idea that the sense of loyalty that people have to a particular game. I think it was last week maybe I was talking to Alicia about Call of Duty, and [laughs] just how there are people who have just as you said, you've known people playing Electronic Arts version of FIFA your whole life. There are those people who just say no, this is the franchise, and as long as companies continue to invest and improve that franchise, make it better, iterate year over year, then those people are just going to stay loyal to that game.

Gallagher: With video games, I think it's not always mutually exclusive. I think people can be very into Call of Duty, and very into FIFA, and it just depends on who you're playing with, it depends on your mood. You can throw in Mario Kart, sometimes when you have friends like me over who don't want to play intense video games. I think that a lot of times people will have their favorite. They've things that they're most loyal to, the ones that maybe they'll watch on Twitter, the ones that they'll spend more of their time trying to iterate and get better at. But I think that you do have a lot of this interest and continued loyalty throughout multiple games in multiple different platforms which I think is why video gaming is a really interesting and attractive platform, because if you play one, that doesn't mean you're never going to play another.

Hill: Maria Gallagher, always great talking to you. Thanks for being here.

Gallagher: Thanks a lot for having me.

Hill: As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd. I'm Chris Hill, thanks for listening. We'll see you tomorrow.