Why I'm Betting On FuboTV Over DraftKings
May 25, 2021
In my newest Forbes article, I revisited Fubo, discussing its audience growth, the launching of Fubo Sportsbook and most importantly, its rivalry with DraftKings.
As a tech analyst who is trained in product, I see a sizable runway in live sports OTT and sports betting with Fubo having key advantages over DraftKings. The management has to execute, and while the market calls this speculation, I call it a product road map.
FuboTV must continue to grow its audience. I made the argument that this is the most essential piece over the coming quarters when the shorts attacked this company. The bearish reports ignored the most important piece to a media company: audience growth. Fubo has handily overcome the challenge of growing its audience year-over-year regardless of the seasonality in sports. The last two quarters could not have gone better in this regard.
FuboTV put quite a few triple digits on the scoreboard in the last earnings report, which was the strongest first quarter in company history. Due to the seasonality of sports, Q1 is typically lighter in terms of growth for Fubo, yet the company reported sequential revenue and subscriber growth.
Prior to the earnings report, we reached out to Apptopia to check the app data on Fubo. Apptopia is a provider of competitive intelligence on mobile applications.
With the information, we issued the following note to our subscribers on April 20th: "Fubo guided to end Q1 with subscribers of 520,000 to 530,000, representing growth of 82% YoY at the midpoint. Data from Apptopia shows that Fubo ended March with approximately 585,000 daily active users (DAU) versus the Q1 guide for 525,000 paid subscribers at the end of Q1."
Aside from audience growth, FuboTV must also execute on launching a sports betting book. This is easier than the public markets think as Fubo has every required ingredient. Most importantly, competitors such as DraftKings do not have all of the essential ingredients that FuboTV has, and we expect Fubo will see a healthy uptake for this product launch.
Fubo Sportsbook is expected to launch in Q4. The company has $400 million cash and is planning to spend less than $50 million to launch sports betting, per the Q1 earnings report. Fubo plans to deliver streaming and gaming in one data analytics platform, offering users a seamless experience. We expect the company will see lower customer acquisition costs as a result of owning the audience. Fubo’s CEO, David Gandler, said during the most recent earnings call that 30% of users are willing to participate in free-to-play, according to surveys done on the platform, while 22% of paid subscribers are willing to place bets on Fubo.
As for Fubo’s rivalry with DraftKings, Fubo is already on par with it in terms of ARPU and has not added sports betting yet. These numbers show that with sports betting, Fubo could potentially see $100 ARPU or greater.
Notably, DraftKings spends an exorbitant amount on sales and marketing at 82% of revenue. This reflects the cost of acquiring users when you don’t own an audience. It’s interesting, of course, that the critics of Fubo do not look at the $1.5 billion in net losses that DraftKings accrues on its bottom line. On a forward basis, DraftKings is estimated to report ($2.82) EPS for fiscal year 2021 compared to Fubo’s estimated ($1.96) EPS.
Notably, despite having 1/3 the revenue and audience size of DraftKings, Fubo is trading at 1/6 the market cap. It’s not hard to see the potential here, and clearly a healthier bottom line isn’t the reason that DraftKings trades at a 300% higher valuation.
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