Why Investors Need To Be Careful About “The Next Netflix”, fuboTV

FuboTV has been all the rage among investors in recent days, but there are some important points people need to know.

Dec. 23, 2020

FuboTV (NYSE: FUBO) is a bit of an anomaly on Wall Street. This time last year, nobody even knew who they were — many probably still don’t — and today, it looks like every FinTwit and their mother is talking about them.

Its stock has doubled in just under a month and is up almost 50% in the first two days of this week alone. Why the sudden growth though?

Well, because of speculation mostly. 

FuboTV CEO David Gandler appeared on the Voices of Wall Street podcast on Friday, where he was asked about a range of topics, including the possibility of hosting fuboTV-exclusive sporting events in the near future. His muted response was simply, “Everything is always on the table.” When pushed for a more definite answer, Gandler noted that the company is in a quiet period, preventing him from being more forthright. Investors, being the wild bunch they are, have taken his response as a definite “yes” it seems, hence the rally.

Gardner then went on to make a CNBC appearance on Monday, further exposing the brand and making investors more aware of its existence, which might help explain the heightened trading volume.

Do I have to be the party pooper?

If you’ve been following fuboTV developments, you’ve likely heard all the bull thesis for them. A simple search gives you all the information you need in that regard. However, in the words of MyWallSt Head Analyst, Rory Carron: 

“It’s always important to read the bear thesis.”

This has never been more important than now, when many stocks get caught up in a social media frenzy. It’s already obvious that many investors have the wrong perception of fuboTV, believing that it is the next Netflix. This is not the next Netflix. FuboTV buys traditional networks from major content companies and resells them in packages to customers. 

So what is fuboTV’s bear thesis?

  • There is a lot of competition in this space, including long-standing participants such as YouTube TV, Hulu Live, Sling, and AT&T Now. 
  • For the many distributors selling these packages, this is a tough, commoditized, low-margin business. This is especially true for smaller operators like fuboTV, which has only 500,000 subscribers.
  • In the first 9 months of 2020, they reported $105 million in revenue from their subscribers. The cost of their content alone — excluding marketing and tech costs — was $114 million.
  • FuboTV pays for content networks on a per sub basis — this cost is contracted and usually rises 4-5% each year. So they will have to raise prices every year — or grow their small ad sales by a huge amount — just to keep this negative margin from getting even worse
  • FuboTV spends about $60 on average to acquire a customer, and churn at 10%+ per month, so most are gone within 6 months.

These are among the main bear cases, and they are not negligible. This is a company that is operating in a difficult space, so be sure to do some proper research before diving headlong into it because someone on Twitter said so.

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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here