fuboTV (FUBO) intends to raise $150 million from the sale of its common stock in an IPO, according to an amended registration statement.
New York, NY-based fuboTV was founded to offer a combination subscription and advertising revenue platform to stream mostly sports events to user devices such as SmartTVs, mobile phones and other computing devices.
In 2019, pre-acquisition, fuboTV generated a monthly ARPU of $54, which represented an increase of 42% over the previous year.
Management is headed by Chief Executive Officer Mr. David Gandler, who has been with the firm since April 2020 and was previously president and CEO of fuboTV and Vice President Ad Sales at DramaFever, a video streaming service.
Below is a brief overview video of a consumer review of fuboTV:
Source: Home Theater Hobbyist
The company’s primary offerings include:
- Live television for sports events
- Over 700 channel access to local TV
- Other streaming providers such as Apple and Google
fuboTV has received at least $850 million from investors.
The firm obtains subscribers through online marketing, providing a trial and seeking conversion to paid status.
fuboTV closed 2019 with 316,000 paying subscribers. Its advertising business grew 201% year-over-year and management says it is a ‘key driver of our monetization strategy.’
Sales & Marketing expenses as a percentage of total revenue have dropped as revenues have increased.
The Sales & Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales & Marketing spend, has increased to 3.9x in the most recent reporting period.
The firm has achieved increasing two-month retention rates over the past several years, as the chart shows below:
According to a 2020 market research report by Absolute Markets Insights, the global market for sports streaming was an estimated $11.3 billion in 2018 and is forecast to reach $34 billion in value by 2027.
This represents a forecast CAGR of 14.56% from 2019 to 2027.
The main drivers for this expected growth are that younger demographic users prefer streaming services rather than traditional cable TV and the increased speed and capacity of mobile networks.
Also, the recent Covid-19 pandemic has provided a boost to streaming providers in the short term.
Additionally, streaming service providers have also integrated newer technologies ‘such as peer-to-peer commentary and…augmented reality.’
Major competitive or other industry participants include:
fuboTV’s recent financial results can be summarized as follows:
- Increasing topline revenue
- Reduced operating losses and negative operating margin
- Variable cash used in operations
Below are relevant financial results derived from the firm’s registration statement:
Source: Company registration statement
As of March 31, 2020, fuboTV had $8.1 million in cash and $372 million in total liabilities.
Free cash flow during the twelve months ended March 31, 2020, was negative ($98.6 million)
FUBO intends to sell 15 million shares of common stock at a midpoint price of $10.00 per share for gross proceeds of approximately $150.0 million, not including the sale of customary underwriter options.
Dragoneer Investment Group has indicated an interest to purchase shares of the offering in the amount up to $50 million in aggregate, a positive signal of interest as to valuation.
The company also has Series AA Preferred Stock which will have 0.8 votes per share but will be convertible into two (2) shares of common stock. If all of the Series AA Preferred Stock was converted into common stock, it would more than double the amount of common stock outstanding.
The S&P 500 Index no longer admits firms with multiple classes of stock into its index.
Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $1.5 billion.
Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 16.0%.
Per the firm’s most recent regulatory filing, the firm plans to use the net proceeds as follows:
We currently intend to use the net proceeds of any offering of securities for working capital and general corporate purposes and for growing our live TV streaming platform. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement our business, although we have no present commitments or agreements to enter into any acquisitions or investments.
We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering. Accordingly, we will have significant discretion in the use of any net proceeds.
On October 2, 2020, we intend to repay in full, from our pre-offering cash reserves, all outstanding amounts (inclusive of any interest, fees and penalties) owed under our $10,000,000.00 term loan from Access Road Capital, LLC, or the Forest Lender.
Management’s presentation of the company roadshow is not available.
Listed underwriters of the IPO are Evercore ISI, BMO Capital Markets, Needham & Company, Oppenheimer & Co., Roth Capital Partners and Wedbush Securities.
Commentary
FUBO is seeking to go public to pay down debt and provide the firm with funds to fuel its expansion plans.
The firm’s financials show accelerating topline revenue growth, but still high operating losses and operational cash burn.
Sales & Marketing expenses as a percentage of total revenue have been dropping; its Sales & Marketing efficiency rate has increased. Both are positive signals as to the firm’s improving marketing efficiencies.
The market opportunity for live TV streaming in the sports vertical is large and expected to grow at a substantial rate for the medium term as younger demographics choose streaming solutions over traditional cable television bundles.
Evercore ISI is the lead left underwriter and there is no data on IPOs led by the firm over the last 12-month period.
As to valuation, the firm’s revenue growth trajectory is steep and its proposed valuation at IPO is 6.2x for Enterprise Value / Revenue Multiple.
Fubo TV appears to be well positioned to take advantage of strong industry trends, but the firm will need significant investment to cover operating losses as it seeks to become a major player against far larger and deep-pocketed industry competitors.
I’m concerned that even after the IPO, it will be in a David vs. Goliath dynamic and will not have the scale and enormous resources that the other streaming players have.
At its current negative cash flow, the firm will have about ten quarters of runway left, so it is likely FUBO will need to raise additional financing, either dilutive equity or non-dilutive debt.
Additionally, the Series AA Preferred Stock shareholders may convert to common, diluting the common float significantly and potentially depressing the stock price..
While the firm’s revenue ramp is impressive, its operating losses are high and there are aspects of the capital structure I don’t favor.
My opinion on the IPO is therefore NEUTRAL.
Expected IPO Pricing Date: To be announced.
Glossary Of Terms
(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)
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