fuboTV Inc. (NYSE:FUBO) Q3 2023 Earnings Call Transcript

fuboTV Inc. (NYSE:FUBO) Q3 2023 Earnings Call Transcript November 3, 2023

fuboTV Inc. beats earnings expectations. Reported EPS is $-0.00029, expectations were $-0.25.

Operator: Ladies and gentlemen, thank you for standing by. My name is Sharao, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fubo Q3 2023 Earnings Call. All the lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Alison Sternberg, Senior Vice President of Investor Relations. Please go ahead.

Alison Sternberg: Thank you for joining us to discuss Fubo’s third quarter 2023. With me today is David Gandler, Co-Founder and CEO of Fubo; and John Janedis, CFO of Fubo. Full details of our results and additional management commentary are available in our earnings release and letter to shareholders, which can be found on the Investor Relations section of our website at ir.fubo.tv. Before we begin, let me quickly review the format of today’s presentation. David is going to start with some brief remarks on the quarter and full year and Fubo’s strategy, and John will cover the financials and guidance. Then, we will turn the call over to the analysts for Q&A. I would like to remind everyone that the following discussion may contain forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding our financial condition, anticipated financial performance, business strategy and plans, industry and consumer trends, and expectations regarding profitability.

These forward-looking statements are subject to certain risks, uncertainties, and assumptions. Important factors that could cause actual results to differ materially from forward-looking statements include those discussed in our filings with the SEC. Except, as otherwise noted, the results and guidance we are presenting today are on a continuing operations basis, excluding the historical results of our former gaming segment, which are accounted for as discontinued operations. During the call, we may also refer to certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are also available in our Q3 2023 earnings shareholder letter, which is available on our website at ir.fubo.tv.

With that, I will turn the call over to David.

David Gandler: Thank you, Alison, and good morning, everyone. We appreciate you joining us today to discuss Fubo’s third quarter 2023 results. We are very pleased with our results, which we believe continue to show the strength of Fubo’s aggregated sports-first content and leading product features. In the third quarter, in North America, we delivered $313 million in total revenue, up 43% year-over-year, and a record 1.477 million paid subscribers, up 20% year-over-year. Our North American ad business continues to grow as a result of our expanding focus on direct sales alongside our already successful programmatic business. We delivered $30.3 million in North America ad revenue during the quarter, an increase of 34% compared to the same period last year.

We noted on our last earnings call that we expected the ad market would experience an acceleration in the back half of 2023, and are pleased that trends are moving favorably in that direction. Fubo’s growth trajectory gives us continued confidence in our full-year performance. Therefore, we are raising our 2023 North American guidance to $1.319 billion to $1.324 billion in total revenue, representing 34% year-over-year growth at the midpoint, and 1.584 million to 1.599 million paid subscribers, representing 10% year-over-year growth at the midpoint. In addition to strong results across our key performance metrics, we also continue to make significant progress towards our 2025 positive cash flow goal. The third quarter marked continued healthy year-over-year improvement in cash usage as a result of our focus on unit economics and cost discipline.

We meaningfully reduced net loss by $21 million and delivered a 619 basis point reduction in subscriber-related expenses, or SRE, as a percentage of revenue to 89%. Additionally, we reached 6% gross margin, an 884 basis point year-over-year improvement. We closed the year with $266 million in cash, cash equivalents and restricted cash, and we believe have sufficient liquidity to fund our current operating plan as we progress towards our 2025 goal. The cable TV and streaming space experienced a true inflection point during the third quarter with the creation of new content distribution models following the Charter-Disney dispute. Since the first quarter of 2021, we have stated that the industry would see a shift from unbundling of content back to aggregation.

More recently, many in the industry have called it The Great Rebundling. We have been steadfast in this position over the last two-and-a-half years and are confident that bundling is the best way consumers can extract value while providing media companies a profitable path to monetizing their content portfolios and sports contracts. Going a step further, we believe the industry will shift towards super aggregation, meaning distribution platforms will start to package content in different ways and deliver it to consumers at multiple price points. This could mean an entry-level AVOD or FAST tier to a skinny bundle comprised of multiple premium channels and Plus services to the full virtual MVPD bundle, with, of course, AI contributing to a personalized streaming experience.

Fubo’s goal is to be a super aggregator and we are well on our way. Our aggregated sports-first offering coupled with diverse news and entertainment programming is delivered through a single app that is customized to our users. We expect to deliver an even more personalized Fubo experience as we focus on our technology advantage in creating must-have product features, like we did with MultiView and 4K streaming. First on our roadmap is Playlists, which, leveraging our proprietary video AI technology, will allow the user to view and select the most important moments of live sports events recorded on their DVR, such as: just the scoring drives from a recorded football game or all the three-point shots from a recorded basketball game. We believe it’s this compelling value proposition, aggregated content delivered through a personalized streaming experience that will make Fubo the gateway to television.

In summary, our third quarter results, progress to our 2025 positive cash flow goal and evolving market dynamics provide us with more confidence than ever that Fubo’s business model will provide value for consumers, our content and distribution partners, and of course, you, our shareholders. I will now turn the call over to John Janedis, CFO, to discuss our financial results in greater detail. John?

John Janedis: Thank you, David, and good morning, everyone. The third quarter furthers the momentum that we experienced over the first half of the year, including healthy top-line and subscriber growth, resulting in meaningful improvements across many of our KPIs and providing us with confidence in our ability to achieve profitability. Total revenue for the quarter increased 43% to $320.9 million, driven by 43% revenue growth across North America and 45% revenue growth from Rest of World. This represents a 14% upside against the midpoint of our Q3 revenue guidance. We ended the third quarter with 1.477 million subscribers in North America, representing 20% growth year-over-year, and over 411,000 subscribers in the Rest of World, representing 15% growth year-over-year.

On the modernization front, ARPU in North America reached $83.51, an all-time high, while Rest of World ARPU was $6.98. Growth in subscribers and ARPU allowed us to exceed the midpoint of our Q3 guidance. Turning to advertising, despite the continued challenges many advertising businesses are facing, I am pleased with our ability to deliver $30.3 million in advertising revenue across North America, a 34% increase versus the prior-year period. Importantly, we continue to make material progress on the operational side of the business by lowering expenses and increasing efficiencies. These efforts resulted in a near 900-basis-point improvement in gross margin to 6%, marking our fourth consecutive quarter of positive gross margin. The top-line growth and improvements across the income statement led to a $21 million year-over-year reduction in net loss to a loss of $84.4 million, resulting in a net loss margin improvement to negative 26.3%, favorably comparing to a negative 47% loss margin in the prior-year period, demonstrating that we are making meaningful progress towards our goal of becoming profitable.

This led to a third quarter 2023 per share loss of $0.29, a significant improvement compared to a loss of $0.57 in the third quarter of 2022. Third quarter adjusted EBITDA loss also improved to a loss of $61.5 million compared to a loss of $83 million in the third quarter of 2022, while adjusted EBITDA margin was minus 19.2%, a significant improvement from minus 36.9% in the prior-year period. This resulted in an adjusted EPS loss of $0.22, an improvement compared to an adjusted EPS loss of $0.46 in Q3 2022. As it relates to our balance sheet, we believe we continue to have the necessary liquidity to invest in the business and support our path to profitability, ending the quarter with $266 million of cash, cash equivalents, and restricted cash.

In addition, our ongoing efforts to identify efficiencies and maximize leverage across the business resulted in a $40 million improvement in free cash flow. Further, as David mentioned, these results demonstrate the noteworthy progress we have made across our operating expenses, all of which have come down as a percentage of revenue and, in some cases, on a dollar basis as well, as we remain disciplined in our investments and deployment of cash. As we continue to grow subscribers, optimize our pricing, we expect to see continued leverage on the SRE line, which decreased from 95% to 89% of revenue in Q3 2023 versus the prior-year period. Now turning to guidance. For the full-year 2023, we are once again raising our guidance for North America.

We expect full-year 2023 subscribers of 1.584 million to 1.599 million, representing 10% year-over-year growth at the midpoint, and the full-year 2023 revenue of $1.319 billion to $1.324 billion, representing 34% year-over-year growth at the midpoint. In the fourth quarter, we expect revenue of $385 million to $390 million, representing 24% year-over-year growth at the midpoint. For Rest of World, our full-year 2023 guidance now projects 388,000 to 393,000 subscribers, representing a 7% year-over-year decline at the midpoint, and revenue of $32 million to $33 million, representing 33% year-over-year growth at the midpoint. Note that our prior-year subscriber count was positively impacted by the 2022 World Cup. In the fourth quarter, we expect revenue of $7.6 million to $8.6 million, representing 13% year-over-year growth at the midpoint.

In summary, we believe our 3Q results provide further evidence that the operational and go-to-market initiatives we have enacted over the past few quarters are gaining momentum and transforming our business. These actions are driving improving trends and we are confident Fubo has the foundation necessary to further grow and improve across every facet of our business and position us to deliver enhanced value to shareholders. I would now like to open the call to questions. Operator?

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Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Shweta Khajuria with Evercore. Your line is open.

Shweta Khajuria: Okay, thank you for taking my question. Could you please comment on the overall brand sentiment, advertiser sentiment that you are seeing and hearing? And any commentary on how the ad revenue trended intra-quarter, so if to any degree you can comment on month-over-month revenue growth or trends versus last year? And then, any thoughts on any impact from the Israel war at all — if at all? And then finally, any commentary on different impacts from different verticals? What are you seeing in auto versus perhaps CPG or travel and financial services? Thanks a lot.

John Janedis: Shweta, this is John. Maybe I’ll start. There’s a lot there. So, if I miss anything, please feel free to come back. But let me start on the categories. Maybe I’ll go in reverse chronological order. For the third quarter, to the comments we made on the prepared remarks, we put up a 34% growth. I would say the stronger categories within that for 3Q were, call it, retail, e-comm, auto is actually up, strong mid-single — strong double-digits I should say, home and garden was up solidly, and so was pharma. On the weaker side, I would include, call it, food and beverage, insurance and tech. And if I go to the fourth quarter, I would say that we’re continuing to see some weakness in tech and insurance and maybe some financials.

And then I would see — say general strength and call the auto and retail, e-comm categories to date. In terms of the war, I would say a couple of things. One is that the — we’re not seeing much in terms of cancellation necessarily at this point. I think what we’re hearing though in the marketplace is just there’s a bit less visibility as I think clients are just holding money a little bit tighter to the vest to see how things play out. In terms of the shape of the quarter, call it, July, August, September, I would say the variance by month wasn’t too dissimilar. I would say the strongest month was July, the slowest month was September, but when you grow 34%, clearly, they’re all pretty strong. I’m not sure if there’s anything else that I may have missed, but feel free to ask anything on top of that.

Shweta Khajuria: No, that was great. Thanks, John. I guess anything you’ve seen so far in terms of how October trended, and what you’re hearing for the rest of the quarter as it relates to ad spend? Thank you.

John Janedis: Yeah, sure. Yeah, I would say so — I’d say October came in a little bit lighter than what we saw for the third quarter in any specific month. And so, if I give you sort of some guardrails, I would say if 2Q grew at — I think it was around 5%, 3Q was 34%, call it, 4Q probably looks somewhat closer to 2Q than 3Q.

Shweta Khajuria: Okay, got it. Thank you very much.

John Janedis: You’re welcome.

Operator: Your next question comes from a line of Darren Aftahi from ROTH. Your line is open, Darren.

Darren Aftahi: Hi, guys. Thanks for taking my questions. Just following up on that, can you guys speak to with the success you’ve kind of seen with the direct ad business, like how confident are you in just like your ad business having legs beyond the fourth quarter? I guess said another way, do you feel like the business has pivoted or inflected in a positive way kind of longer term?