Analyst Gives Thumps Up to Fubo's Scuttling of Gaming Business
Wedbush Securities’ concerns over FuboTV’s “cash burn” and its ability to raise capital to “extend its cash runway” were assuaged somewhat by Monday’s announcement that the virtual MVPD folded its Fubo Gaming subsidiary and ceased operation of its Fubo Sportsbook, effective immediately, analyst Michael Pachter wrote investors Tuesday.
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Wedbush bumped up Fubo’s Q3 revenue estimates after the company released preliminary quarterly results Monday along with the gaming news. The analyst firm projects Fubo’s Q3 revenue at $216 million, up from $210 million. Fubo expects to close Q3 ended Sept. 30 with revenue of at least $215.5 million, which would be a 34% year-on-year increase, and higher than guidance of $200 million-$211 million given in August. It raised Q3 North America paid subscriber guidance Tuesday to 1.22 million, a 27% year-on-year increase, vs. prior guidance of 1.13 million-1.15 million. The company reports Q3 earnings Nov. 4.
Fubo CEO David Gandler said on an August earnings call Fubo Gaming was under “strategic review” (see 2208050024) as the time required to develop the wagering business was “significantly longer than investors have an appetite to wait for today.” Fubo was looking for a partner for the gaming unit, but “while multiple parties expressed interest in the business, none of these opportunities would have allowed Fubo to lower its funding requirements and generate sufficient returns to shareholders,” the company said Monday.
Shuttering the sports wagering business “will lessen the company’s burden” to fund growth and could save $20 million annually, Pachter estimates. “While we are big believers in the appeal of marrying sports viewing to sports wagering, we think that fuboTV has expertise only in the former, and view its divestiture as a clear positive on its path toward profitability,” he said.
Wedbush maintained an “outperform” rating on Fubo stock, saying a “decent Q3 and wagering closure bode well" on its "path to profitability.” Pachter referenced Fubo’s intention to be profitable by 2025, with levers including subscriber growth, subscriber and average revenue per user expansion, and expense reductions. The virtual MVPD told analysts at its August investor day it is targeting 2 million-plus subscribers, ad ARPU of $15-$20 and subscription ARPU of over $80 by 2025.
Pachter is “conservative” on longer term ad ARPU estimates “as we would like to see more progress here before assuming that the company’s $15-$20 is achievable” by 2025, but he noted Fubo’s plan to introduce a free, ad-supported TV channel, which could accelerate ad revenue growth.
Despite advertising spend that's still lower than linear TV, connected-TV advertising trends remain positive, Pachter said. “While ad spending is rising rapidly on CTV, it has not cannibalized the vast pool of linear TV ad spending to the extent that CTV viewership has cannibalized linear TV viewing,” he said, noting lower ad inventory on CTV owes to viewership that has been concentrated within subscription VOD services.
That's changing as more streaming services are offering ad-based VOD tiers, Pachter noted. “As we approach the point where CTV viewership surpasses linear TV,” he said, citing eMarketer estimates of 2024, “our advisor thinks a unified measurement system will emerge.” At that point, ad agencies will facilitate “more holistic media buys incorporating CTV,” Pachter said, “as these barriers have historically prevented marketers from placing more comprehensive media buys.”