Q3 2020 Fubotv Inc Earnings Call
Obligations to revise any statements to reflect changes that occur after this call.
Description of these and other risks that could cause actual results to differ materially from these forward looking statements are discussed in our reports filed with the SEC, including our most recent annual report and our press release that was issued this afternoon.
On the call. We may also refer to certain non-GAAP financial measures reconciliation with the most comparable GAAP measures are also available and there plus release on our website at IR dot through both Dot TV.
With that I'll turn the call over to David.
So thank you Bradley.
We're really excited to be hosting our first earnings call as a publicly traded company on the NYSE since were leading live streaming platform. We thought it would be most appropriate to host this call via alive earnings Webinars and Q and a session that has been a momentous quarter for the company to say the least we closed our public offering last month raising total gross proceeds.
Of $197 million before commissions and fees and from an execution standpoint, Q3 was by far the strongest quarter in the company's history. Our results have exceeded previously raised guidance with solid growth across every capex we track.
Revenues were up 47% to $61 million, that's well ahead of the guidance range, we provided a $52 million to $55 million.
Our business is really comprised of two components subscription revenue, which was up 64% and advertising revenue, which was up an amazing 153% AD revenue for the quarter exceeded 12% and to put that into context 2019 AD revenue represented roughly about 8%. So you can see why we're so excited.
About the quarter and about our guidance in Q4 and for full year 2021 paid subscribers at quarter end told the 455000 and that 58% above the 280000 last year net additions came in at 167000, that's up almost 100% year over year acceleration.
Net adds also came in at a lower Sac, which was a brilliant job by the team given the fact that we were already really.
Really efficient we are encouraged with the increase in market share from a net adds perspective relative to our peers.
Margin expansion for the first three quarters of the year also came in ahead of estimates in January I said that our goal was really to expand our margins by about 150 basis points on a quarterly basis sequentially going forward adjusted contribution margin came in at a whopping, 16% and that's really due to the timing of content.
Drops.
The addition of Disney E.S.P., yet, but from a normalized basis thats roughly about 10% to 10.5% and this result was really driven by three things we had a price increase of $5. We had better merchandising and I think the team did a phenomenal job selling 800000 attachments versus 235000 attachments in the year prior that's a.
An increase of 240% year over year, and advertising sales, which I've already highlighted earlier crude clearly plays an important role in margin expansion at the end of the day, we made some really bold moves in the quarter and that really speaks to our ability to leverage our proprietary data and two it also speaks to our the quality of our execution as you all know.
It's tough to expand margins, while growing your sub base.
At this current pace.
The Tailwinds have never been stronger who goes it's firmly at the intersection of three Mega trends. The first is the secular decline of traditional television viewership. The second is the shift of TV AD dollars to connected devices and the third is online sports wagering a market, we absolutely intend to enter our growth opportunities are numerous and they're a great. Many reasons.
So for us to be optimistic given the optionality in the business since some of your newer to the story it might be helpful. For me to provide a quick background on who we are in 2015, we founded frugal introducing a live streaming platform to serve the needs of U.S. soccer fans that weren't able to watch international soccer leagues recoup we quickly learned that soccer fans wanted three things.
They wanted a greater breadth of sports and entertainment content. They wanted an intuitive user experience and the of course want an exceptional value in a very short period of time for what has become a leading sports first cable TV replacement service for the entire family we offer a wide variety of premium sports and entertainment content at a very affordable place price.
Over 110 channels and 50000 live sporting events and that also includes both the regular season and the post season for leagues like the NFL, the NBA and NHL.
Supporting our offering is our proprietary data and technology platform that really optimized for live TV and sports. Our platform has enabled us to regularly offer new features and functionality for our subscribers to the best of my knowledge. We are still the only virtual MPPD to stream lives sports.
For K.
As a matter of fact, we stream Thursday night football as well as most recently the World series, that's on Fox in four K.
We're also the only virtual MTV, where customers can watch it to four livestream simultaneously through our recently updated Multiview feature on Apple TV, We believe our platform offers and more differentiated a more personalized premium viewing experience for sports fans and that's really reflected in the recent reports highlighting customer customer satisfaction relative to our peer.
Irrs and it also is reflected in our App ratings and most importantly, it's reflected in our improving retention.
We are indeed, expanding into the online sports wagering market. Our goal with wagering is to develop a very robust revenue stream, we believe wagering could be as valuable as our growing AD sales business and Fumo has an opportunity to combine a sports wagering service with the leading live sports streaming package, we've nailed down our strategy and we expect.
The share tactical details as appropriate.
As you will hear from smoking shortly the outlook for Q4 is extremely solid we are raising full year guidance not only for 2020, but also for 2021 the growth of our advertising business, coupled with our strong attachment rates on value added services, such as our cloud DVR and the ability to stream on multiple devices continues to improve margins. The team is.
Laser focused on driving both the top line growth and making progress on our path to profitability. We believe provides differentiation in the marketplace, which is sports focused programming and a tech first user experience firmly positions. The company for long term growth and massive success and with that I will turn it over to my colleague Sumani. Thank you David and good afternoon.
We are very pleased with our third quarter results and I'm excited to be publicly traded on the New York stock exchange before we address your questions I want to walk you through a few financial highlights and discuss the roll forward looking guidance.
Revenue was $61.2 million in the third quarter, an increase of 47% compared to the pro forma revenue in 2019, and an increase of 71%. If we exclude face bank agee's revenue less the business that we then saw the annualized it doesn't when these.
This growth was driven by continued strength across all of the revenue segments subscription revenue increased 64% year over year and advertising sales increased one onto a 53% accounting now for 12.3% or thought about revenue in the quarter.
In summary, we continue to focus on both the top line growth and progressing on our path to profitability now.
Now looking forward war in conjunction with our strong quarter and continuing momentum in the business as David mentioned were raising guidance for the fourth quarter 2020, as well as for the full year 2021, as we do not expect the legacy face bank business to generate revenues in the fourth quarter. All my competitors on urea will now be to the pre merger four number.
2019.
Expect fourth quarter revenue to be between 18 million and $85 million, an increase between 51 and 60% compared to 2019. We also expect to end the quarter and fourth quarter. We paid subscribers of between 500005 I didn't add 10000, an increase of 40, 58% to 62% he had already.
Usually the fourth first that our guidance compared to probably provide a guidance, but do you have to doesnt find the revenue is expected to be 20 to $44 million to $248 million on a pro forma basis, an increase of over 65% Yearoveryear risk.
We expect our growth in 2020 to continue into 2021, where we are raising now by $15 million, our previous revenue guidance to a new range of $415 million to $435 million projection projecting that growth over 70% WIDIA is somebody we continued to be very excited about our future growth opportunities.
We remain focused on driving long term growth and reaching profitability.
With that let's turn the call over for questions Brinley.
Yes.
This thing we're going to turn the call over to our analyst panelist person queue in AG, let's start with Kevin Rippey at Evercore go ahead Kevin.
Thanks for taking my questions I guess first one given that subscriber momentum you saw if you just think about how much by way of better gross addition, burst reduce churn and perhaps.
Any color around how much. The addition of Dsps contributed to that and then second question just on the longer term as David you mentioned the sports gambling opportunity is there a certain subscriber scale that you have in mind before getting more aggressive on that front or just helping us think about the timeline would be releasing here. Thank you, yes sure. So.
For the first part of your question I think the answer is all of the above we benefited from an increase in subscriber counts we benefited from better.
Better retention dynamics.
And that was obviously evident in our numbers.
As you know with respect to your Wagering question look we're super excited about wagering I would say that we've already started executing on our strategy and at the appropriate time will provide more details, but the way we think about wagering as we look at it from a three bucket perspective, we have an acquisitions advantage we have in engagement advantage and we have a monetization vantage.
So for acquisitions, you should think of it that we're starting with 500000 paying subscribers and what you've heard from our ability to sell attachments. This quarter, we think that we're going to be able to also sell in a lot of wagering opportunities number two was on the engagement front, we have over 50000 sporting events on the platform and we're getting people to watch over.
120 hours per.
Per month, so they're going to be ample opportunities for us to really sort of drive that forward and then I think the third piece is the monetization vantage.
You know.
Obviously getting players to play is important but think about the value from a retention perspective getting people to churn out less and also from a monetization perspective in terms of advertising sales. So we feel like we have everything that we need to sort of build a sizable business around this and as I said, we're already executing on that strategy.
Great. Thanks, guys.
Thank you.
Right.
Dan Fannon at Vietnam Go ahead, Dan.
Really.
Maybe ill take a churn David asking a little bit about advertising you mentioned.
You know over 100% growth here this quarter I think we all of US listening have been getting lots of questions about connected TV growth and the shift to that.
Over to Koby period in particular, so could you maybe just.
You get on that a little bit you saw in the short term trends.
Jewelry or you're seeing drive.
The outperformance and then just maybe if you look back.
Big picture and you brought in.
That you did or what.
The advertising business with you.
Your vision for what your platform should be a major milestones you want if you build it out over the next few years yeah. Thank you Dan that was a good question.
Look at the end of the day.
Kogan really just accelerated what's been happening prior to this there has been a shift of TV AD dollars to connected devices well before cogan, we're starting to see the impact of that on a normalized basis in the sense that it really hasn't impacted our business in Q3.
With respect to Diana Horwitz were continuing to build out a team.
Around advertising, we're also starting to develop more AD tech to be able to provide more addressable opportunities that we think will ultimately drive up our cpms higher and also just the number of viewing hours that were seeing also continues to uptick, albeit below what we saw in Q2, but certainly we're able to maintain the current trend that we saw.
In Q1 going into Q4.
Thank you and our next question comes out as Jason Helfstein of Oppenheimer. Please go ahead he said.
Thanks, maybe I'll dig in a bit more on marketing side and subscriber growth. So you did highlight lower sac.
That being said, if we calculate sales and marketing parameters, which does have obviously other other items. It was up a lot in the quarter.
So just maybe talk about leaning into marketing.
Particularly around what quarter and into next year as you have a healthier balance sheet and then as well in that sales and marketing line is.
Investment in your sales team to.
You do more direct sales, maybe just how should we be thinking about that line broadly kind of fourth quarter next year now that you've got a stronger balance sheet. Yes look I think first of all Jason. Thank you. That's a great question if.
If you look at our annual spend so far through three quarters, we spent about 17% 17.5% of total revenue on marketing to date. So we're well below what are what a growth company would be spending in terms of growth.
In terms of AD.
AD sales I think again, we're building out our team and you know subscription businesses require investments in the upfront to be able to.
Leverage.
The LTV going forward smart airfares anything to add to that.
The the performance there it looks like as you mentioned, David I mean, the expansion that we're seeing is the is quite important I mean, we're always managing and weve been able in the past to manage a very measured way the way we push the marketing spend to ensure that we kind of embedded fishing body, new subscribers and we continue to do that going forward and I'll just add to that.
As it relates to Q4 again, we are well within our estimates when you look at just the sort of the marketing spend associated with our subscriber acquisition cost.
Thank you. Our next question comes from Laura Martin Needham go ahead.
Right, maybe at all Kevin's lead it to.
First of all we argue that your cost your content costs are lower than your competitors because.
A much larger percent SVR subscribers, you sports every week and so that $8 you're paying him I'm sure. He SGN is actually spread more equally over your subs. So could you get us in this really heavy sports corner of the third quarter what percent of your total subs were watching sports every week and therefore amarin.
As in your content costs over more.
And and then I guess the second one is on churn.
One of the things you've been working on is getting that Sac, which was $60 at least last quarter to extend into two or three extra quarters come for the sport stay for the entertainment. So I'm interested in that metric like have you extended by another two weeks or one week can you give us some idea of how you're thinking about lowering churn, but I'm actually more interested in that.
Nickel number which is when you spend money on Sac, how many customers come for this soccer season next soccer season next soccer season. So maybe that's the right way to think about your churn and I'm wondering if you have any maybe guidance about that vertical churn number as well as the number you keep track of which is the horizontal through time churn and whether it's falling.
Yes, so Laura Thank you that again is a great question.
We obviously focus on.
Vertical cohorts as well we.
We see a significant amount of reactivations typically at the start of every season, whether it's a soccer season NFL season or college football season. So.
Reactivations typically come in between 25 and 35%. So we are looking at our churn both horizontally and vertically and I would say that is the correct way to look at it and we favor our marketing budgets that way as well, you'll see us spend more at the front of the season and less towards the end of the season. So in terms of.
Marketing expenditure for Q4, you know October was was also big month, because as you know.
Some of the college football has started to return and so you know the teams are working hard to ensure that we are able to manage our subscriber acquisition costs and as I said before we're doing a really good job really honing that in and let's not forget Q3 was a big political a quarter, so with political coming in you're going to see a lot of pressure on the amount of inventory that is available.
To see pressure on pricing. So again, we did a really good job this quarter, adding a significant number of net additions, it's roughly a 100% above last year and coming in on a subscriber acquisition cost side with roughly below three 3.5% below where we did last year. So again, we're very excited about that in the team has done a phenomenal job.
Thank you Laura let's move forward with Guarana five from Roth Capital go ahead Darren.
Hey, guys. Thanks, taking my questions and nice results and hope you're well on two for me so.
The really talk a little bit about this but the tree just called extremely bullish in particular on the connected TV space with even called out now as well.
A large E commerce brands should be at about 10% of the linear budget.
Exit and saw a really nice returns so with that in mind.
I think maybe one of the underappreciated parse your store is the advertising segment, just give us a little bit of a glimpse on where you think that business go longer term and.
What has any kind of accelerants or headwinds you see in terms of getting there and then just two more granular on your revised sub count guidance.
Guidance for the fourth quarter were up mid way through how much visibility you guys. Currently have on that 510 to five five.
500 to five times there. Thanks, So I'll take the first part of the question.
Look I think from an advertising perspective, we provided guidance at the midpoint of $6 to 50 cents of advertising ARPU per customer we ended.
With just over $7.50 or we feel very good about our ability to monetize our customer base over the long term I think we provided guidance in our S. One and during our road show that we think the long term opportunity is roughly about $20.
Per month on a net basis when I sit in that basis. That's after fees to some of our third party vendors. So there's a long way to go here, we've got ample room in terms of where we are from a CPM basis. All of our deals. Currently today are done programmatically and again, we're right now investing in.
In our data we're investing in our AD Tech and you know our goal is to really product ties a lot of our data we think that there's an opportunity to really grow that business significantly over the next call. It 18 to 24 months.
Yes.
Jumping on top of the second half of the question Darren.
Since the subscribers numbers, we have in our fourth quarter guidance clearly, we truck subscribers on a regular basis in a way the team and provides a very focused on that metrics on a daily basis.
The numbers that were projecting getting the guidance is clear they want to get comfortable with at this point and shows you know the expectation of growing sequentially every single quarter view it over the year comparing to the prior year setting is a very solid numbers showing growth and I know feel pretty good about that.
And the last thing I'll just add is it obviously there is visibility were subscription business. So there is some level of predictability.
In our subscriber revenue and in their subscriber count it as I said, we're just seeing the benefits of college football, which we didn't see.
Normally that we would enter a quarter.
Thank you at this time Im just going to do a quick way Paul if anyone else has any questions that they would like.
Go ahead, Jason Helfstein from Oppenheimer.
So maybe.
I think it would be deepened advertising, David how are you thinking about long term how much of advertising should be direct sale, how it should be and I just.
How how how are you just thinking about kind of maybe the evolution of the AD business over the next two years Greg.
Great question, Jason I think what's important to note is that this company is very young its a five year old company. This is a cloud borne company everything we do in the cloud everything we attempt to do is automated and therefore, when we look at advertising in AD Tech you know the goal here is to really automate our capabilities and so.
And if you're thinking about how much we're going to invest in our direct sales team. Obviously it will be at a fraction of what a company that was more boots on the ground would invest so again, we're looking to do a lot of this programmatically through private marketplaces.
And eventually we'll be able to build out a self service platform when you think about.
The opportunity over the long term.
Thank you and I felt Laura Martin from Needham had a question go ahead.
You brought a political I'm dying to know broken those same two or 3% trade desks and five or 6% of their CTV did you guys see benefits from connect from clinical in the third quarter, absolutely I mean for what was known for live sports and live news both of which are a sport. So no I think we benefited.
Tremendously from political I would say ours is probably closer to about 15% just given the number of news channels. We have on the platform and as you know for BOE is about live television and this is the type of content that is certainly consumed.
Yes.
Thank you and I think I don't know Kevin might be at Evercore I had a follow on question go ahead Kevin.
Yes, just one more for bigger or smaller.
Just on the subscriber acquisition cost trajectory can you just identify maybe the one or two biggest drivers in the decline you saw how sustainable are those thanks.
Someone who is like right now.
Yes look I think in terms of the seasonality of the hour grow Athena in subscriber that ability we have to target that were at fourth on the acquisition side.
We discussed before I mean, you noted documentary our abilities to do it to tune in and out that asked for and with a strong demand that we've seen in the in the market opportunity in the last couple of months and you know going forward in the fourth quarter. We clearly are upping that affords you know very pointed bases bedding efficient basis. So it is a lot of that is focused on digital very targeted acquisition cost.
But to diversify it and as we grow we grow bigger and larger we also have the opportunity to kind of leverage more organic expansion and upside from out from an acquisition standpoint, So clearly in the fourth quarter. We continue to kind of progress in these investment and kind of ensuring that we get the return on their web trial targeting in terms of subscribers acquisition and then from there.
First off with the as you know has more seasonality you know, we're working on opportunities going to mitigate the seasonality, but that's when we're going to you know clearly the more uncertainty or or assessing more to put it to either going to spend the money or retain that kind of effect in our subscriber basis.
Yeah.
Thank you are there any additional questions from our analysts.
Dan Salmon at BMS go ahead.
Brinley.
David You mentioned.
The attachment rate and the merchandising of the product and pricing these days.
Mostly interested in the attachment rate, what's the short term sort of runway for that what are some of the key strategies that you're implementing in the merchandising product to drive that right now and what's the runway on that type of opportunity that seem to be fairly material.
Right now, yes, so our attach rate Dan was about 1.2, that's now just exceeded about 1.8.
You know the team is very data driven I think we've said that this company collects about 21 billion data points per month and the team is AB testing on a daily basis and you know we've got about 400 landing pages with different offers and they continue to sort of tweak those and again you know you're going to start to see new types of.
Products coming out and you know we're also leveraging the marketing channels to see where those folks are coming in and if there's any way for us to really.
Do more of that co hoarding that allows us to really improve that attach rates, but we're very happy with our current trajectory and we think that continues over the long haul and as you may have read in the shareholder letter Weve also added stars and epic. So that's yet another way that we think we're going to be able to continue to drive the attach rate.
Thank you and I, both Darrin I find it a lot of capital how to follow on go ahead Gary.
Yes, I know, you're not giving too much detail on wagering today, but do it I'm just kind of curious what your thoughts are in terms of how somebody like you.
Sports Wagering go together, what kind of impact that would have on retention rates long term, yes. Thanks, Sara look.
It's a great question.
I think it's clear we are sports first.
Pay TV replacement service people come to food Boe for the sports and so you know we have a very credible brand I think that it has is the value of our entertainment package.
It also allows us to continue to create a lot of interactivity and connectivity.
Between consumers as well so we're very focused on that as I said, we started executing against our strategy. There's a lot of advantages.
That we have and look we're looking forward to starting to make announcements in the coming months.
Thank you I believe that it's it found that interesting.
Perspective, before we end the call I wanted to address an investor questions that were submitted in advance to our IR inbox.
Our first question.
Talk about the competitive landscape and licensed about yes.
Yes, so thank you really.
And thank you to our investors that have been writing in look at the end of the day for BOE is a cable TV replacement service. Our motto is come for the sports stay for the entertainment Weve differentiated via our sports branding and the way we look at it.
Competition really is that this is not as here are some game. There are 80 million people that still have a cable service and were looking to attract those consumers. So at the end of the day I think we're all going to benefit from the secular trend.
Thank you and one final investor question, what can handle here with the proceeds from the IPO.
I take it so in terms of the IPO as you know clearly, we're very happy and.
We have we have been very pleased with the results for the IPO.
He is one on the $97 million gross proceeds are being or upsizing offering initial offering and then also sold a good portion of the or the over allotment. So as we discussed that during the road show in the appeal process. Our goal is to ensure that we cannot capitalize propylene the business to find them and further enhance our growth and speed of execution. So at the mean you.
Usage for that Capitala is going to be actually inside the working capital to ensure that we continue to kind of progress and expand the business.
Yeah, just just to add to it look we're very excited we had an amazing Q3, we think we're going to have a very good 2020, which is very difficult to say.
You know coming out of Cove. It I think there were many reasons why this could have failed, but again kudos to the football team had done.
Tremendous job this year and you know we're going to continue to build out our team we're going to continue to build out our technology and we're going to continue to make bold moves throughout 2021. Thank you.
Thank you on behalf of the blood flow.
And thank you for joining us today, we appreciate your ongoing support jets and appointed keeping you updated on our progress.
Thank you Dennis Thank you very much.