As a streaming replacement for a traditional cable TV subscription, fuboTV (NYSE: FUBO) was in the right place at the right time, benefiting from the tailwind of changing consumer viewing preferences. When the company announced its fourth quarter and full year 2021 results last week, it noted rapid growth in subscribers and revenue.
But there was one particular sign of concern in the earnings report that could give would-be investors in this streaming platform pause — an unprofitable bottom line. Let’s take a closer look at this latest earnings report and see if the company has what it takes to overcome this disappointing metric.
fuboTV improves customer value
Impressively, fuboTV added 185,000 subscribers in the fourth quarter (ending December 31), bringing its total to 1.13 million. This jump in subscribers nearly doubled from the growth of 93,000 during the same period in 2020. The acceleration in growth should end the theory that fuboTV is primarily a home-based stock that will thrive during the pandemic but who will struggle afterwards.
Increased subscribers in the fourth quarter fueled 120% year-over-year revenue growth to $231 million. In addition to adding customers, fuboTV earns more per customer. Average revenue per user increased to $74.52 in Q4 2021 from $69.19 in Q4 2020 and $59.14 in Q4 2019. This is a great sign for shareholders that fuboTV is accelerating growth subscribers and increases prices simultaneously.
The bad news? fuboTV lost $112 million in net income in the fourth quarter. That said, this is an improvement from the $195 million loss in Q4 2020. Most of fuboTV’s expenses are subscriber related. fuboTV must pay distribution fees to the networks for the privilege of showing the networks content to its customers. Therein lies the disappointing fourth quarter metric – subscriber spend was negatively deleveraged.
From Q4 2019 to Q4 2020, fuboTV’s subscription spend as a percentage of revenue increased from 118.7% to 85.6%. This is what you like to see as a shareholder: revenues increase and costs increase more slowly, creating leverage and increasing profitability. However, from Q4 2020 to Q4 2021, subscription spend as a percentage of revenue increased from 85.6% to 93.5%. This raises concerns, especially when revenues have increased by 120%.
Management was asked about the reversal of this trend during the conference call following the release of the fourth quarter results. CEO David Gandler responded by saying:
About the ERS [subscriber-related expenses] line, what you see is that we have added regional sports networks. We acquired sports rights. Again, very light. We are preparing to test new things and we want to better understand what the value proposition is for our customers and the impact on all of our key performance indicators.
In other words, fuboTV increased the amount of content it offered to consumers. The deleveraging was likely due to content costing fuboTV more than the gradual increase in average revenue per user year over year.
What this could mean for fuboTV investors
The move essentially increases the customer value proposition; consumers get more for their money with fuboTV. This can be a good thing if there is evidence of return on this investment, which is the case with the near doubling of total subscriber growth.
That said, it’s easier to win customers if you sell them products at such low prices that they aren’t enough to cover your costs. fuboTV’s share price is down 79.7% over the past year despite excellent revenue and subscriber growth. To turn things around, fuboTV probably needs to prove it can run the business sustainably.
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