fuboTV (FUBO -3.57%) delivered another quarter of triple-digit growth in subscribers. Its focus on live sports is leading to strong engagement from viewers and lower cancellation rates. Overall, revenue grew 144% over the year-ago quarter.
The stock initially fell after the earnings report, but it has since recovered. Management told investors that its starting to focus on improving profitability, which could shift the narrative around fuboTV from a money-losing enterprise to a fast-growing and profitable streaming platform.
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Signs of a strong brand
One highlight of the quarter was that fuboTV delivered strong top-line growth while pulling back on marketing. Sales and marketing expense comprised 21% of total revenue, compared to 28% in the year-ago quarter.
Despite that pullback in marketing, fuboTV added 185,000 subscribers in the quarter, bringing the total to 1.1 million, excluding the acquisition of Molotov.
The strong subscriber gains in a competitive market show that fuboTV's sports-centered offering is resonating with audiences. The service differentiates itself from larger competitors like Alphabet's YouTube TV and Sling TV through a wide selection of live sporting events and advanced features, such as multi-view that allows up to four simultaneous live sports streams on Apple TV.
The company says 96% of its subscribers watch sports. As more cable subscribers cut the cord, fuboTV is positioned as the destination of choice for sports fans looking for cheaper alternatives to cable, where a monthly bill can be twice what fuboTV charges.
Now that fuboTV has crossed the one-million-subscriber level, management sees a clear path to reaching sustainable profitability, which could be a catalyst for a reversal in the stock's recent underperformance.
Profits get easier with more subscribers
A larger subscriber base helps lower fuboTV's operating costs as a percentage of revenue, since some of the expense required to secure sports rights is fixed. As subscribers grow, the cost to deliver sports content gradually diminishes against a larger user base.
"We've decided that we have over a million customers right on the platform, and the more market access licenses we get, the easier it is for us to leverage our subscriber base to drive customers," CEO David Gandler said on the earnings call.
Over the last two years, fuboTV's adjusted contribution margin improved from negative 3.1% to positive 9.7%. There was a slight tick down in contribution margin in the fourth quarter due to some regional sports networks that fuboTV acquired recently, but the longer-term trend is pointing to better profitability as the membership base grows.
However, fuboTV's profitability could improve much further. It is just beginning to integrate its sports-betting feature in states that have granted fuboTV permission to offer wagering to its users. The company's growing member base also points to more growth in high-margin advertising revenue, which grew 98% last quarter but still makes up a small percentage of the entire business.
fuboTV is winning in a competitive market
fuboTV is not without risks, since it is going up against established players. A lot can change in the next 10 years in this dynamic streaming landscape. If competitors can match fuboTV in content and features, or the company starts to report a downtrend in margins, that would be a good reason to sell and move on to other opportunities.
Still, it is telling of fuboTV's strengthening brand that the service is growing its subscriber base faster than the broad industry, which expanded 38% last quarter. That pales in comparison to the company's triple-digit percentage gain.
The fourth quarter might have been a key turning point in fuboTV's road to profitable growth. If the service can stay ahead of the competition by securing more sports rights and releasing new viewing features on its app, this top streaming stock could be a bargain after falling 76% over the last year.
