Chit Chat Stocks - FuboTV (FUBO) | Deep Dive

Episode Date: January 14, 2021

FuboTV is a live television streaming platform. Fubo focuses on live events such as sports, news, and entertainment. Ian Gray joins your hosts, Ryan and Brett, as the Chit Chat Money team dives into the FuboTV company analysis. Find the timeline below to jump between subjects. As always enjoy the show! Subscribe to 7 Investing with the code "CCM": https://7investing.com/subscribe/ Follow Ian and check out his work on Twitter: https://twitter.com/IanGrayLive Follow Chit Chat Money on Twitter: https://twitter.com/chitchatmoney Subscribe to Chit Chat Money on Youtube: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ Company Background | (2:20) Company History | (4:28) Industry | (5:46) Management & Ownership | (7:55) Valuation | (9:49) Earnings | (10:58) Balance Sheet | (15:45) Competitive Advantages | (18:35) Growth Opportunities | (21:43) Highlights & Lowlights | (26:44) More or Less Interested | (35:49) Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investment. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are not financial advisors. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guest is not formal advice or a recommendation. Now, please enjoy this episode. Okay, welcome in. This is the Thursday Deep Dive show on Chit Chat Money, the one we do every week. And we're talking to FuboTV today. It is a very controversial name, one of the number one controversial names out there. So all three of us took a look at it. Me,

Brett, Ryan, and then Ian, who will be joining us shortly. But first, we're going to be talking about 7investing. Ryan, do you want to give the pitch today? Yeah. So, 7investing, if you use our code, you get $10 off. Typically, it's $17 a month. So, what is that? Like a 60-something percent sale? Huge discount. Huge discount. Yeah. Yeah. I mean, we're saving you a lot of money, $10 whole dollars. So, I mean, feel free to sign up. You get a lot of great analysis from people we respect and people or analysis that we want to be able to do, you know, especially with the biotech stuff. I mean, you know, if you're listening that we don't understand biotech whatsoever. Well, not at all. And if you, they almost act as a financial advisor. I know the call, they're having like an investor call or sorry, a subscriber call tomorrow. So you can discuss

one-on-one with the analyst. It's a very intimate service. That should be the day after tomorrow. So yeah, I mean, it's great, right? Yeah, I think so. And you know, if they get bigger, it might get less intimate. So now's the time. Now's the time. You got to get in early, but all right. Yeah. I think that's the whole sales pitch. Okay. Yeah. Code CCM at checkout. And We're talking to Fubo TV. We have Ian on today. Ian, how are you doing? You're up in Flagstaff, Arizona now. I don't want to reveal your location just for headquarters for. Yeah. But how's it going today? It's going well. Getting used to the cold weather. I know everybody loves hearing us talk about the weather, but trading Phoenix for Flagstaff is pretty different. Pretty different. Yeah. And we're talking Fubo TV. Yeah, I guess we'll get right into it.

We don't want to give any of our takes away until the end, but Ryan, do you want to introduce the company and kind of explain the business model? Sure. I think it's pretty easy to understand, but Fubo TV is an over-the-top media provider for streaming sports news and entertainment.

So the easiest way to think about this is that they're essentially bringing cable over to connected TV. I mean, that that is really what they're doing. You subscribe. So Fubo TV buys out the rights to all these content providers. providers uh so yeah channels so let's say espn or whatever they get the rights to that they pay however much they have to pay in order to do that and then they bundle that stuff together and

they ship it out into subscriptions uh that they hopefully get subscribers for and their three subscription plans are family which is 65 a month elite which is 80 a month or latino quarterly which is 25 a month i think that third one's kind of funny but it's like all the premium uh spanish channels spanish like spanish like originally spanish language channels yeah if you're okay uh and then yeah you basically get traditional cable tv but it's just over the over wi-fi instead of like with actual cables i had to have you explain this to me because i'm like a child and apparently i only understand connected tv but they used to have real cables so that's pretty much gone now um so you can just use the wi-fi instead there are still ads um and they get

cut of that ad revenue, I believe. I'm not sure exact percentage. But yeah, the goal for a company like this is to hopefully price their subscription at a fixed margin that's above their distribution rights, the cost for distribution. So that way they can just generate, let's say, all their distribution costs per person are $60. They can charge $80 and they automatically get all that margin um but uh fubo doesn't really do that but we'll talk about that in a little bit um am i missing anything on what they do or no they're very simple i mean they're gonna get into trying to get into sports betting and they do have a sports and news focus but we'll get into that you know in the second half of the show okay and uh history fubo tv was co-founded in 2015 by

david gandler who i believe is now the ceo ian am i right yep that's correct okay and then alberto horiwela i'm definitely getting that wrong and sung ho choy so hopefully i got all those right tough test today yeah but originally this was launched as a soccer streaming service and that changed eventually i think in 2017 to an all sports service and then finally switched to what they are now which is a virtual multi-channel video programming distributor that's really long but uh if you see that abbreviation which i think is vmvpd that's what it means uh interesting no amc networks was an early investor bullish is that a bull signal for who for who for both no i mean what is it i feel like amc is just the the company that

licenses breaking bad and walking dead now that feels like their entire business but all right uh and then fubo tv got really big uh for being the first live tv streaming service to support 4k video for the 2018 world cup i think subscribers grew like 100 after that so uh yeah that's sort of how they came to be who they are now uh ian or brett no yeah on industry competition that kind of thing yeah so the general tailwind for them you know is uh streaming tv right so that's everyone can see you know cord cutting is is a trend that should be over the next 10 15 years uh there might be a floor on cable subscribers, but we'll see. There's definitely a trend away from the cable box to people like Netflix and other people like that who are not direct competitors, and then to

things like FuboTV, YouTube TV, Sling, et cetera. Others projected over 30 million cord cutter households in 2020 in the US, and it's supposed to grow by the high single digits over the next decade. You shouldn't worry about, with this company, the market collapsing on them. It's definitely a growing market however they don't you know compete directly with Netflix or HBO or Disney plus as Ryan explained above the product competitors include someone like you know YouTube TV Hulu live TV and Sling TV are there any others you guys you know or no those are kind of the big I think those are the major ones okay like a direct TV now maybe there might be there actually might be yeah direct TV is actually probably a competitor too yeah okay and then they also have

the sportsbook business that they're not technically in yet, but have made a ton of investments in. And I think Ian will talk about that in his future growth opportunity. But that is a very fragmented market at the moment because, you know, gambling got legalized federally in the United States, but it takes all the states equally to do their own legalization. So they have to make the law. I think like 20 or so states have it legalized and then you have to get all the licensees. So, you know, there's no big leader right now, but out of the gate, it seems like, there's BetMGM, there's MyBookie, there's Penn National, and that's associated with Barstool Sports as well. Then there's a few others, but really right now that's anyone's market

and Fubo is trying to go out. Fubo, sorry, that's one strike, please drink. And then no need to really go into the numbers, but the opportunities for this market, I mean, both market opportunities are really large. I mean, they're over a hundred billion dollars and right now it's all an execution strategy for Fubo. So Fubo, Fubo, gosh. Is that strike two? Strike two. All right. Ian, you want to hit up the management and ownership? Yep. So like Ryan mentioned, uh, the CEO is David Gandler. He was one of the co-founders of Fubo. Um, you know, it started originally, like you said, as the soccer platform and that still, um, plays a role in their strategy today. So they have this saying that goes, come for, come for the sports, stay for the entertainment.

And they think that they can attract people because of their live sports offerings. And then, um, basically, you know, get them to sign up for these larger packages though, because of the entertainment options that they have. There's some numbers out there that as many as 9 out of 10 households that still have cable only have cable because of the live sports. And so they think they can really attract some of that market into this over-the-top offering. They also kind of believe this is another piece of the strategy

that we'll get into later, but David Gandler and some of the other executives really think that they can sell wagering to their existing customers, which makes it more attractive. They believe acquisitions are really going to be powerful because they have a built-in customer base of about 500,000 subscribers who they can upsell on this gambling and wagering and that type of stuff. The total director and officer ownership is around 30%. There's a few people, including a guy named John Texter. They used to call him the former head of studio. He owns about 10% to 12% of the company.

The CEO owns about 5%. And then it's also worth noting that Comcast, Viacom, and Disney all own between 4% and 5% of the company. So this does have some ownership from other players in this entertainment industry. Yeah, it's interesting. It seems like a definite buyout candidate for someone like Comcast. Disney, it might not work out. But that's similar to what they did with Hulu back in the day. You know, AT&T, Comcast, and one other, Fox, and Disney.

They all owned Hulu at the start. But yeah, I'll get into valuation. Not much here because they really have revenue and they're losing a lot of money, which Ryan will get into in the earnings, but the ticker is F-U-B-O. Market cap is about $2.16 billion, although it's extremely volatile. So make sure you're tracking where it actually is when you're looking to trade for it. And also make sure to track the shares outstanding because they've done a lot of share offerings. So the stated market cap, if they start doing future common stock offerings or convertible

note offerings, or if they give out a lot of stock options as a way to raise money, make sure you're counting that in your market cap calculation. If the company hits around $275 million in revenue for 2020, which it looks like they may have a close chance of doing, because they did announce a pre-Q4 revenue beat, then their price to sales would be around 7.6, although that is not for sure yet, but they did pre-announce that beat. And then there's really nothing else to report here because they got negative gross margins or at least break-even gross margins. So I can't even do an EBITDA gross profit, but I'll just kick it over to Ryan because the earnings, there's a lot to dig into there. Yeah. They don't actually explicitly report gross profit, but I'll talk

about why we see it that way. So third quarter revenue was $61.2 million, up 47% year over year, 71 growth if you exclude the face bank ag sale do you want to talk about what that was yeah i'm not i'm not an expert on that ian if you know more about it we can uh you can talk about it too but they were a live uh gosh what were those things you know when there's like a dead artist or something and they do a concert with a virtual hologram they were the people that did that technology so it didn't really fit in with fubo tv and maybe it wasn't really a growth business so they kind of sold it off you know am i getting that correct on that or yeah they originally merged with them, I believe, in order to get access to more capital. And so that was the

reason for the acquisition. And then once they kind of got the capital and the IP that they wanted to use, they sold off the rest of it. Okay. And 87% of their revenue comes from subscriptions. The remaining 13% is from advertising and advertising is growing at 153% year over year. But obviously that is from a much smaller base. I think this year or this quarter, they had like seven and a half million. So if you, I'm not doing the math exactly here, but I think it's somewhere between two and $3 million last year. So the growth nominally isn't as high, but they had 455,000 paying subscribers at the end of the quarter of 58% year over year, average revenue per user per month was $67 and 70 cents that grew about 14% year over year.

And if you're looking – as I said, if you're looking for a gross profit number, they don't really have it, but they give a line item called subscriber-related expenses, and those are basically the cost for distribution rights, and those are variable. So for each new subscriber they get, they have to pay out or they have higher distribution rights, and that's why we classify it as negative gross margins because they have more subscriber-related expenses, I'm putting in air quotes here, than they do in revenue. So they're paying more distribution costs, which we would consider basically a cost of goods sold. Yeah. And that's a number to look at over time. Is that growing like slower than revenue? If so, maybe they'll get the positive gross margin someday on a trailing basis. But right now they're not there. Yeah, ideally, the idea is that you have, let's say it's $60 a month to subscribe to Fubo. You want Fubo, Fubo wants to be paying, you know, $40 or $50 for the distribution rights. Yes. Right now it's at like $65 versus $66.

So they're losing money on that. But I believe the distribution rights would stay a little more consistent. And if Fubo increases prices, then all that is margin, hypothetically, but obviously increasing margins isn't super easy to do, or increasing prices isn't easy to do. Operating loss for the quarter was $302 million, but $237 million of that was impairment of intangible assets, which was just attributed to the sale of that face bank reporting unit. Excluding that, they had a $65 million operating loss, so like negative 105% operating margins. Doesn't look great. So their burn rate seems to be going pretty fast. It seems like they're burning through a lot of money, and I think that's why they ended up doing the equity raise that Ian will talk about.

But something that did concern me going through this, it feels like they're trying to mask their real numbers. there were some adjustments that were a little strange. They report non-gap adjusted contribution margin at 16%, which contribution, it was like, I read through it and it was already an adjustment in and of itself. So it's like a double adjusted contribution margin. And for, and a lot of that was for the timing of the content negotiations. If it weren't for that, it would have only been 10%. So it just seems like they were kind of trying to hide it. I think they should just give the numbers that like, they didn't even report any numbers relating to profits in any

of the headlines. Like you had to go down to the tables. That should be something that you shamefully put at the bottom, but at least put it out there. Yeah. I mean, they're not required to, I guess it just has to be in the 10Q, but yeah. I mean, for me, I look at some of the stock-based compensation and stuff and some of that depreciation because it can matter. But in reality, I look at that cash flow number and I think it was like they've lost 72 million in operating cash flow over the last nine months. That's the true number people need to look out for because if that number doesn't turn positive, they're going to have to continue to raise money. And what do you have? Yeah, that's exactly right. And that leads

right into the balance sheet. So on the most recent balance sheet we've got, they had cash reported of about $39 million, but they did do, as Ryan alluded to, they did do another equity offering. And so that cash balance should be somewhere around 200 million ish. Um, we'll see exactly what it is on the next balance sheet. It is kind of an interesting balance sheet though. They have a lot of goodwill, which as we've talked about before is the difference between what you pay for a company you acquire and what the book value of that company is. And so when you hear about people paying a premium on a company, part of that is, or that's, that all goes towards goodwill, but there's also other things that are included in goodwill as well. But, um, goodwill

along with the other intangible assets make up about 70% ish of the assets, um, on Fubo's balance sheet, which is pretty concerning. That's a big, like that's a big portion of the balance sheet. That's basically got no tangible assets. Now the reality is they do have a lot of book value that, um, so like it kind of cancels out, they have all these intangible assets, but they don't have a whole lot of liabilities that are against those intangible assets. So it's not a super red flag, but it is something to be aware of because as we saw in this most recent quarter, they're susceptible to write downs. And so the EPS number can get hit pretty hard. Now, anybody who's investing in Fubo probably doesn't care about EPS right now,

but it's just something to keep in mind. They've also got about $46 million in debt, which will become a net cash position with the proceeds from the offering. And it has been paying down a bit of the debt. Um, I think about $10 million in the last quarter. And I don't know that I really want to pin this on Fubo, but I think it's worth bringing up that, uh, Quibi comes to mind a little bit because this is the type of business that has high acquisition costs and content costs. And so you both have to pay a lot for the, for the content, like Ryan was discussing, and they're paying more for the content than they're actually taking in right now. And you have to pay to acquire the customers. If they're able to get to scale, it'll work. And the balance

sheet won't be a problem. But if they don't, goodwill impairment and debt carrying costs could become an issue. It's also, as we've been talking about, they're probably going to have to issue more shares in the next few years or debt in order to keep up with this cash burn. But they did raise some cash in the most recent quarter. So they've got a little bit, they've strengthened of the balance sheet a bit yeah definitely watch out that share count they are trying to raise some money to go after these big investment opportunities that they see you know out there the sports book and you know trying to dominate the uh vmvpb market right if i'm getting correct i hate those i hate those acronyms but um if you guys don't have anything else for the info we're

going to hit an ad break and then get to the second half cox panoramic wi-fi includes advanced security to help protect all your connected devices you'll get real-time alerts oh like this one so you don't have to worry about malware or when your kid downloads a song from a shady link and now all your computer can play is red color red color where are you all blocked thanks to advanced security included with cox panoramic wi-fi advanced security must be enabled in the panoramic wi-fi app restrictions apply welcome back next up is competitive advantages uh we're going to start with ian and then go around the table and uh see what we think so ian what do you got yeah so it's hard to find a real competitive advantage because of things like

youtube tv like even youtube tv is their similar offering is priced at the exact same price level as fubo tv so um it's becoming a little bit of a commodity and it's funny because it's disrupted this industry but i'd say i will say it is trying to develop a competitive advantage that i think is a true competitive advantage through an integrated sports book. And so combining TV audiences with live betting is something that I think that would be something that's different than anything on the market and could create a competitive advantage for Fubo. Okay. Ryan, what do you got? I went with existentialism, which is something that a lot of companies throw out there. So it's like oh well we're the only ones that really care but you know google probably doesn't care that

much honestly if youtube tv fails it's uh irrelevant to their business um so this is something we talked about with spotify but yeah i think they are they have the potential they have one focus um and that can usually be reflected in the product so uh spotify i think sort of won that music market because the product was so good and they really cared a lot about it yeah well battle's not over but they're winning right now right um and so i guess that's an opportunity i yeah no i think it's real it's like a backhanded competitive advantage yeah it's true it's true but we have nothing else going for us yeah you gotta have a good business model though you know what i mean yeah um and i guess i'm not really sure who has one because if you don't have

the gross margins, it's kind of tough to build that up over time. But I don't know. Yeah, I guess I never thought about that. Ian, what do you think on that one? Does that make sense at all, the existentialism? I think it can. I think it's not like one of those real strong ones that you go, oh, man, this is a great competitive advantage and you feel real confident in. But I think there is something to that. OK, yeah, I'll hit mine. I mean, I couldn't find any really solid ones similar to you guys. I mean, maybe with their stock price going up so much, they haven't access to capital i wouldn't define that as a true competitive advantage because that can change if the market disagrees with management and then also competitive advantage is an advantage over

your competitors which yeah you don't have more access to capital than google yeah so yeah but yeah i mean more access maybe more access than sling you know but there's also hulu who's owned by disney which has more access to capital than them as well uh maybe aggregating the sports content. Cause I know that it is tough. You know, a lot of people find trouble when they're trying to, you know, figure out how do I watch sports here? Where do I have to go? Cause all those rights are all complicated and stuff. Uh, but that's going to be tough to do. And in reality, I don't know if they can do that better than Disney or Fox or Comcast, even, you know, who owns NBC. All right. Uh, future growth opportunities next, uh, in you have sports betting. So you want

to talk about that yeah so let's let's talk about sports betting for a minute um just today the day we're recording this actually they executed a binding letter of intent with the interactive gaming company victory which is going to propel their go ahead so i was just going to say that's a good name yeah i it's uh it's an interesting name but um they're expecting that to help them launch a sports book before the end of the year sometime sometime in 2021 they want to get a sports book going. That's going to be standalone, but then eventually integrated into their TV and their sports offerings. So they really want it to be a free to play gaming experience, which I'm not quite sure exactly what that's going to look like or what's that that's going

to mean. They've been a little bit vague about it. But they believe it's going to drive new lines of revenue through the actual gaming experience and also increase engagement, which will then help with their ad monetization and so they think it can create a little bit of a flywheel effect i know that term gets overused but they think that's going to happen um it'll be interesting to watch and i think that is a sports or a growth opportunity in a way that they could differentiate themselves yeah i did see them uh have they talked about the flywheel on their conference call they also talked about their unit economics being strong when i was like guys come on we can see that but uh they're not strong right now but ryan what do you have for future

growth opportunities this isn't one of mine but i'm just now thinking about this uh you know with 200 million dollars in cash it seems like uh like a barstool partnership would be huge yeah but because they have 90 of nfl games yeah i mean they know that that would be strong yeah that definitely would be i mean i know from i was going to say this from my highlights on low lights but all my friends that are whatever under 40 i guess they're all under 30 but they love they're going to bet with barstool when it's the possibilities there you know what i mean like they they love it so and if you can be the place where people are like watching and betting simultaneously i think you kind of got to be with barstool in order to do that but my growth opportunity is going to be

flights as a customer acquisition funnel so this quarter they announced a partnership with satellite internet provider biasat i think i'm saying that right uh to bring fubo tv sports network to jet blue flights that are equipped with internet so customers get yeah free access to their sports network while in the flight and that's only if you subscribe to fubo nor is it for anyone it's for anyone flying jet so i'm sure jet blue paid them yeah for this but they can subscribe from their seat if they really enjoy that experience so that could be a good funnel but i fear that they risk like becoming uh known as like a flight network you know what i mean like if that's successful they're gonna be like oh well those are the guys that like can show you sports on a

flight like yeah and the thing is most times on flights like i've kind of gone to the thing where you can download from your streaming services now and i mean i guess if there's a huge game you want to watch you might want to watch on the sports network that's connected to the internet but i've kind of gone to the downloading thing because whatever they have on those go-go in flights things they're usually just so hard the operating screen is terrible that i'd rather just watch it on my phone or another you know my laptop or ipad or something that's what i was thinking of was the go-go uh i think go-go is like a company outside of it but all i do is i just attribute it to flights yes i think they have a full business but i just fear that they end up turning into that

but i do think it's an easy way to get customers like if they have a good experience with that and they see like a good catalog of sports and they're like, Oh, I can just subscribe and download it at home or have the subscription and play it anywhere. That'd be great. Yeah. Especially if people are thinking about cutting the court already, it could be the catalyst where they're afraid that they're going to lose all their sports content, but they'll actually have it on Fubo. And that is your growth opportunity.

Yeah. I mean, I had trouble finding any outside of, um, you know, the sports book because that's kind of their big bets. Uh, but cutting the court is, you know, it's a good tailwind that they have. value proposition is kind of something along the lines of you don't need your cable provider to get the live options on cable so it's like all right maybe the pricing is the same or maybe it's a little bit less but we can get the same channels that you would be through comcast or charter whoever is your local cable provider um the only question though is that there's a lot of competitors out there because with the internet just you know it's just over a wi-fi or broadband

connection anyone can compete with them as long as they have the capital to invest in it so youtube tv you know hulu tv and sling they're all competitors doing the exact same thing i mean as youtube tv they can just run that at cost and it's not going to affect google's margins at all that's just something where i'd be concerned with like does fubo have any pricing power you know yeah but i use youtube this plays into my highlights and low lights so i'm going to go ahead and just my uh or my highlight is that uh they could be they could be the good traditional tv provider for streaming youtube tv kind of sucks sometimes i use it and like yeah they could run it at cost but if the product sucks i'd rather pay up for fubo if it's really good okay interesting

okay um but i there no one's paying up for fubo right now so that's like you know i guess they have shown the average revenue per user can increase but right now uh they're gonna have to do it incrementally every month every quarter or whatever in order to be get cash flow positive yeah i think the concern with that and maybe ian you can talk about this you think this is a concern as well so the difference like between them and cable is back in the day or still currently when you subscribe to cable um there's only one option and that's basically their moat right someone like Comcast, no one can come in and just say, all right, we can offer the same thing because you got to literally dig the cables to get to your house. But for these things, like the switching

costs aren't high as long, unless they make them high, like, you know, to call them up or go on their website and cancel. I just don't know if that can ever like, unless it's all about the product and the execution of, you know, what the product does and how good it is. Ian, what do you got on that. Yeah. And I think just to piggyback on that, I think they have an issue that other streaming services have too with retention. And I know that they talked about it a little bit, I think in their last conference call that they think retention is improving, but people will sign up for the soccer season, watch all the soccer games and be like, okay, I don't need this anymore and unsubscribe. And this month to month subscription just lets people, people who want to

be more active. And I think as more and more subscription services are out there like this for streaming people are going to say rotate their services and say i'm going to do disney plus this month and i'm going to do netflix next month and then it's soccer season so then i'll do fubo tv and people don't want to be paying for all of them at once and so i think it's kind of inherently um you know there's some there's going to be some churn and some turnover yeah i would be worried about the churn as well maybe they could do some sort of like uh like make it higher during nfl months like make it higher or you can do an annual pass kind of thing yeah i don't know why a lot of i like the sling idea where you just pick 15 channels because most people minimum or

maximum are watching like eight i mean i watch like two like the uh i don't want all 100 you know what i mean can't they do that customizable thing where it gets a lot cheaper that's kind of what you're saying as well orion you want to finish your highlights and highlights and then yeah uh highlights for me is i from the bearish point of view i'm seeing a lot of stuff that i saw with Spotify early on, which is like, they are just a middleman. And yes, I do kind of think Fubo is a middleman, but if you can get to scale and own the customers, then you don't become as much of a middleman. The low light for me though, is that the subscriber related expenses or the distribution costs, those things are paid out on a per subscriber basis. So they're losing

money per subscriber in my opinion unless you do a double adjusted contribution margin but um they run the risk of like if they get mass adoption really fast they run the risk of having a huge deficit like they lose more money the more subscribers they get so they have to do it like slowly or work on advertising better or work on that sports book but that's going to take investment as well yeah i guess like uh if you've seen the show silicon valley there's that scene where they like buy out all the pizzas because they're like acting as a loss leader and then they like get too much revenue too fast and go out of business yeah so i i guess there's just the risk they fall over their skis forward um and then yeah they're it just feels like a

risky uh risky plan and the spotify comparison i think is apt to a point but one spotify has like 25 gross margins so they can't invest down the income statement without hemorrhaging money And two, they have, what is it, 250 million MAUs. So it's a little different than 500,000. Yeah. All right, Ian, what do you got? Yeah, so I think a couple of the highlights are the accelerating revenue growth. Paid subscribers are expected to exceed 545,000 in this next quarter.

And I think there's an interesting angle with the sports gambling. I think that has a lot of legs to it. It's not the type of company I like to invest in, But I think the sports gambling is definitely becoming a growing market. And then for the low lights, it's similar to what Ryan talked about, the negative, what we're calling gross margins. And like Ryan mentioned earlier, they don't even really report that gross margin, which I have to assume is because no one wants to see a negative gross margin. So just going straight to operating expenses, but even in operating expenses, it doesn't look too good because in operating expenses, we see about $85 million in SG&A and $111 million in revenue. And so, you know, that's 80% is going to SG&A and about 17.5% of revenue is directly attributable to marketing.

And so they just have those high customer acquisition costs and these high content costs. And the question is going to be, is can they get enough subscribers and enough other incremental revenue streams that they can overcome that initial kind of negative gross margin there? They with if they added on sports gambling, if their advertising continues to grow at the rate that it was and they're able to make that more efficient, I would assume, you know, and it's the only thing that we can't assume. But we would have to assume if Fubo is successful that that advertising revenue and that sports gambling revenue and potentially they're able to get better distribution deals with some of these with some of these providers at scale that they can turn that gross margin positive. But it is a little bit concerning right now. Yeah, I'd agree with all those points. I'll hit mine. I mean, highlights for me, the strong ARPU growth was higher than I thought. So, I mean, I'm saying here that they don't have pricing power, but if they continue the ARPU growth, maybe I'm wrong. And it seems like it's smart going at it by the sports angle.

I know, like I said before, it's frustrating when those blackouts happen and stuff like that. So they can solve that value, you know, that is really like, I don't know, sometimes I just get really frustrated when things like that happen. You know, you have to be on a certain Wi-Fi network, your local blackouts, stuff like that. if they can aggregate a lot of the sports content, or at least for certain sports fans, I think that could be some sort of a value proposition for people to subscribe to them versus someone else. Although that's going to take up a lot of investments. There's going to be losses while they try to do that because that is such a complicated industry and the rights to all this stuff is really expensive. Low lights though, I mean, there's a lot. Negative gross

margins like you both you said they are competing with well-capitalized competitors so google you know like can leave youtube tv as just at cost and hulu tv is probably at cost right now um they're going to need to invest you know billions in the rights and the sports books to make that product viable i mean one thing to or two things to consider with the sports book is you know one it's not legal everywhere yet two you have to have a physical location at each state i believe in order to do online gambling so they're going to need physical locations you know whether it's just a tiny one and then it's always online and then another concern i have is that i i don't know why yeah i don't know if having it on the tv really matters that much because say you're like

31 years old you had a family and you like to do a little bit of sports betting when you're watching with your kids or something um you might want to just do the bet on your phone you don't want to expose them to this type of stuff because if it's on the tv it's exposed to everyone well i think you i think they that was that's like the end goal is to be able to bet on your phone during the game so then what's the point of having what why does games on tv i know but you can do that with other providers yeah i guess i think they're i think they're looking to do both they want to have the app so that people can do that but they think that they're i think they would disagree with you brett i think they would say that there's something special about having it integrated into

the actual broadcast and i think you're making some good points that that for a lot of people that's probably not necessarily the case. And oftentimes, I think for these types of innovative solutions, the rule of thumb is it has to be 10 times better than what exists. And so is having it on your TV 10 times better than doing it on your phone? Probably not. That's a really good point. It's probably just as easy to pull out your phone and do it. Yeah. And I think another concern, if you are a shareholder, you're almost betting on the entire shareholder base, being able to ride, you know, these losses for a few years, are the shareholders

going to be able to, you know, stick with management as they go through these heavy losses? I mean, maybe they can, maybe they won't. I just think that's a concern. You know, it's something you're betting on. Yeah. What about, I mean, are you, I think I know your answer, but are you more or less interested than yesterday? I'm, I mean, there's some things that surprisingly were better than I thought, but it's just the gross margins to me. And the fact that i don't think they have any competitive advantages with their business model gross margins can change though they can change but i think i it's i don't know i don't see a path where it can here i don't uh so i'm less interested i think a lot of people took that bezos quote to heart

maybe a little too much he meant operating margin but anyway um yeah i guess this is like the whole which horse you're betting on because the upside is really really high but the likelihood is in my opinion pretty low and i tend to weigh uh accurate bets like i tend to care a lot more about being right yeah sure bets sure bets right yeah and less about upside but that's just my personal preference um some people think of it differently i do want to note that uh beth kindig is a shareholder who we think highly of and she's done a lot of research on yeah yeah and i've said i i wouldn't bet against her uh i would not bet against fubo tv uh but i would say i'm a little less interested than yeah i mean there are there were surprises though i think it was getting a lot

of negative light on twitter and it was like a lot of people that hadn't actually looked into it yeah all right yin yeah i think you summed it up there pretty well ryan um i would say i'm a little bit less interested but it does have some interesting pieces of the business and i think it does have that upside. It's one of those ones that I've never bet against because it could really prove you wrong. And I think if they're able to get to scale and if they emerge as the winner, this is going to be a major winner over, you know, over the next five years. But there's just a lot of execution between now and then. So for now, I'm a little bit less interested. Yeah, I think you got to be comfortable if you're investing in Fubo. You definitely have to be

comfortable knowing the fact that the entirety of your investment could go to zero. There's that potential here i guess that's what there's that potential with everything but yeah also there are the uh like there is the idea that there are certain events that i would pay almost any price for i would pay a hundred dollars to get full coverage of a world cup uh for like a month so i mean there are if they have the best product for sports they do have some pricing power but But getting the exclusive rights to sports is so expensive. Yeah. It's so expensive.

NFL is about to go for like $15 billion, I think, or larger, which I don't know if FUBO can get. Who's going to get that, Disney, Fox, or Amazon? But all right. You guys got anything else? Okay. That's going to do it for this episode. Use our code CCM at checkout to get $10 off your first month at 7investing. Remember, we are not financial advisors.

Anything we say on this show is not formal advice or recommendation. Thank you all for listening. We'll see you on our next episode.