fuboTV (FUBO -1.85%), a popular streaming alternative to your cable or satellite TV package that emphasizes sports channels in its offerings, is growing its subscription base in the U.S. The cord-cutting trend was already working in its favor, and the coronavirus pandemic only put fuel on the fire.
From a consumer's perspective, fuboTV's service offers a significant convenience advantage over its competitors in cable or satellite TV packages. fuboTV offers a no-contract signup and cancel-anytime feature with no penalties versus the often complicated contracts of traditional cable companies. Moreover, fuboTV often costs less.
With advantages like these working in its favor, this streaming service is attracting new customers.
fuboTV has a market opportunity
At the end of its first quarter, fuboTV had 590,000 subscribers, and that was up by 105% from the year prior. Still, the company believes there is a long runway of growth ahead. According to CEO David Gandler, there are 78 million households that are still connected to traditional pay-TV plans. Given the added convenience of virtual multichannel video programming distribution (MVPD) and lower prices, legacy pay-TV subscribers are an ideal target market.
Importantly, fuboTV is not alone in the virtual MVPD space. Alphabet's (GOOG 5.34%) (GOOGL 5.32%) YouTube offers a similar product, as does Walt Disney's (DIS 0.93%) Hulu. In fact, Hulu reported having 3.8 million subscribers on its virtual MVPD service. However, what differentiates fuboTV is its focus on sports. Simply put, its packages come with more sports channels than its competitors. That's an advantage because one of the most popular services of pay-TV is access to live televised sports events.
Gandler discussed market share during the company's first-quarter conference call in May: "Since the first quarter of 2020, we have reported approximately 303,000 net adds, which resulted in subscriber growth of 105% year over year compared to only 24% growth for the entire virtual MVPD market as reported in Nielsen Media Research over the same period."
And for the first time in its history, it added subscribers sequentially between the fourth quarter and first quarter. Overall, management estimates it has a 5% share of the virtual MVPD market, up from just 3% in 2019.
The path to profitability for fuboTV
fuboTV is not yet profitable. In its most recent quarter, it reported a net loss of $70.2 million. That's understandable because the company is still in growth mode. What I like to see in growth companies, however, is a path to profitability. And to that end, fuboTV is making progress.
Its adjusted contribution margin, which takes its average revenue per user and subtracts the average cost per user, increased to 5.3% in the most recent quarter. That's up from 3% in 2020 and negative 13.6% in 2019. Although it might be oversimplifying it, you can think of it as the profit per subscriber without considering overhead costs.
fuboTV is planning to launch its very own online sportsbook in the fourth quarter of 2021. That seems like a good fit considering it attracts sports fans as customers. The company's management talked a little bit about why it thinks its online sportsbook will become a success:
Uniquely, fuboTV will look to combine streaming and gaming under one data analytics platform, delivering a holistic and seamless user experience with a lower cost of acquisition. To accelerate the launch of our owned and operated Sportsbook and entry into wagering, in the first quarter, we completed the acquisition of sports betting and interactive gaming company, Vigtory, for a total of $37.2 million comprised of the merger consideration and equity compensation vesting over future periods. With Vigtory, we acquired the technology to build a consumer-driven sports betting product and accelerate our entry into the online wagering market.
Indeed, fuboTV surveyed its subscriber base, and 22% said they are willing to place a bet on fuboTV.
Interestingly, management is not even baking in the revenue opportunity from the online sportsbook for 2021. Its 2021 revenue guidance of between $520 million and $530 million would be an increase of 99% to 103% year over year. If its online sportsbook gains footing in the fourth quarter, those figures could look conservative.
Is fuboTV stock a buy?
fuboTV stock is trading at a forward price-to-sales ratio of 7.5. Its price has increased since it reported fourth-quarter earnings results and understandably so. With so much going right for fuboTV stock, it's hard to bet against it. Investors looking for a high-growth stock with lots of room to expand can consider adding fuboTV to their portfolios.