We are short shares of Fubo, a $6bn company that has seen its share price increase 4x following its October 7th IPO on the NYSE. Remarkably, even after its recent retracement from truly nosebleed levels, Fubo still trades at valuations completely unmoored from reality: 14x 2021E sales, equivalent to $12,000 per current subscriber. We see no justification for these levels. Fubo is not Roku. Fubo is not the next NetFlix. Fubo is not the next DraftKings. Fubo is a streamier version of a pay TV distribution model that is going away, only with far worse underlying economics.
Fubo is billed as being firmly seated at the intersection of cord-cutting, connected TV advertising, and online sports wagering – but during our exhaustive investigation, we were unable to find a single industry executive that believed any of this to be true. Can Fubo control its cost structure and drive better margins in its subscription business? Former managers at Fox Sports and SlingTV certainly don’t think so. Can Fubo increase Connected TV advertising CPMs +50-75%, a crucial input for longer term ad forecasts? Not according to a current senior director at The Trade Desk, who called the notion “crazy” and explained why: Fubo has no special inventory, no special data, and no scaled audience. But the highest level of incredulity we encountered was reserved for Fubo’s sports betting ambitions. Buying Balto Sports was nothing more than buying a TechCruch article said a former FanDuel executive, and the notion Fubo will ever be a company that owns or operates a sports book is ludicrous.
With momentum now broken in the stock, we believe a flurry of near-term catalysts will add further downside pressure to shares: 1) the latest Fubo app download data from a 3rd party analytics provider suggests gross additions have collapsed since Election day and now sit at levels flat to last year, strengthening the view that the outperformance witnessed in 3Q20 was merely a function of a sports calendar that will never repeat, 2) with recent trading characterized by extreme volatility and shareholders sitting on massive gains after only a couple months, today’s lock-up expiry of over 68m shares may lead to disorderly selling, and 3) Fubo burns significant cash and has ambitious growth plans. Having endured a near-death experience once before, Fubo will not be inclined to wait much longer before doing a dilutive equity offering.
Fubo’s subscription revenue will never generate meaningful profits. Accordingly, we value Fubo solely on its advertising revenue stream. Applying a 10x EBITDA multiple to our 2025E estimate for advertising revenue, discounted to the present, yields a fair value of $10.00 (-74%), a price that coincidentally, Fubo deemed fair when it sold shares in its IPO only three months ago.
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