Q3 2021 Fubotv Inc Earnings Call
We have a gambler co founder and CEO of Bubo, and Simona NRT CFO of <unk>.
Full details of our results and additional management commentary are available in our earnings release and letter to shareholders, which can be found on the Investor Relations section of our website at IR Dot Fu Bo Dot TV.
Before we begin let me quickly review the format of today's presentation.
David is going to start with some brief remarks on the quarter and food both strategy and Simona will cover the financials and guidance.
Then I'm going to turn the call over to the analysts to dig into Q&A.
Before we begin I'd like to remind everyone that the following discussion may contain forward looking statements within the meaning of the federal Securities law, including statements regarding our financial condition.
Anticipated financial performance market opportunity business strategy, and plans, including our acquisition strategy and ability to integrate any such acquisitions.
The expected continued rollout of food both sports book and the continued shift in consumer behavior.
These forward looking statements are subject to certain risks uncertainties and assumptions.
Important factors that could cause actual results to differ materially from forward looking statements.
It can be found in the risk factors section of our quarterly report on the Form 10-Q for the quarterly period ended September 30th 2021 to be filed with the Securities and Exchange Commission.
And our other periodic filings with the SEC.
These statements reflect our current expectations based on our beliefs assumptions and information currently available to us.
Although we believe these expectations are reasonable we undertake no obligation to revise any statements to reflect changes that occur after this call.
During the call. We also refer to non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are also available in our Q3 2021 earnings shareholder letter, which is available on our website at IR Docs Bubo Dot TV.
With that I will turn the call over to David.
Thank you Allison and thank you all for joining us today before we dive into our record third quarter results. We are thrilled to announce that since closing the quarter Bubo television has passed the 1 million subscriber Mark Yes, that's 1 million paying subscribers.
This is an extraordinary milestone by any measure, but particularly remarkable given the momentum of our business over just six short years the.
The implications of the milestone are tremendous and undoubtedly far reaching.
1 million subscribers means increased relevance leverage and influence with content partners and leagues plus the opportunity to go upstream on sports temples.
It also means billions of data points for product iteration, and personalization more monetization opportunities and increased consumer mindshare.
And even at 1 million subscribers, we are still only scratching the surface as 72 million plus households, still subscribe to traditional pay TV.
Our record third quarter 2021 results showcase consistent strong execution of our company's mission.
Its emission to define a new category of interactive sports and entertainment TV, turning passive viewers into active participants.
We continue to make great traction towards our long term growth and margin targets and we are once again, raising our full year guidance.
In Q3, we delivered triple digit year over year growth in total paid subscribers of 108% total revenue up a 156% and advertising revenue up 147% and that's compared to the prior year period.
We added approximately 263000 net subscribers, that's 56% more than in the third quarter of last year and more than the entirety of 2020.
Also noteworthy we were able to drive subscriber growth, while spending less as a percentage of revenue than in the prior year.
Turning to engagement our users streamed 284 million hours, that's an increase of 113% year over year.
Our monthly active users watched 121 hours per month on average.
While this is strong engagement it was impacted by the huge influx of new subscribers at the end of the quarter.
As these new cohorts mature, we expect to expand their engagement and monetization. The third quarter was also record breaking for our advertising business, representing our strongest AD sales quarter to date.
AD revenue grew 147% year over year and accounts for 12% of total revenue in the quarter.
Alongside our record revenue growth, we also made meaningful progress towards our profitability goals.
<unk> contribution margin was 12, 4% in Q3, that's up 189 basis points compared to the normalized third quarter 2020 results.
This was driven by our booth spansion with both advertising and subscription partly as a result of strong execution associated with Upsells and packaging. Our attach rate was 2.3, that's up from one eight in the third quarter of 2020, and we sold 2.2 million attachments as of the end of the quarter.
It's also illustrative of our ability to expand our booth and extend the lifetime value of our customers through the provision of additional products and services.
This positions us really well to drive adoption of our wagering product.
Today, we announced a major milestone towards global expansion with the acquisition of Molotov, France's leading live TV streaming platform with 4 million monthly active users.
Molotov operates a freemium business model, which leverages, a free tier to drive growth than upsells customers to premium channel packages. The technology capabilities between the companies will enable us to efficiently launch our interactive sports and entertainment streaming platform on a global scale.
Our transaction is expected to close sometime within the first quarter of 2022, and that's of course subject to certain closing conditions.
Our internally build technology stack is the cornerstone to our platform and that has kept US innovating ahead of street of the streaming industry.
We are prioritizing our product and engineering capabilities to bring to market a category defining streaming experience that is characterized by interactivity.
This is a long term commitment we are making in our product and expect it to yield strong and defensible competitive advantages over the next few years.
Accordingly, we are thrilled to announce the acquisition of Edison AI.
Edison is an AI powered computer vision platform with patent pending video recognition technologies based in Bangalore, India.
With Edison AI, we will be able to create new experiences that integrate interactivity and data directly within our live TV feeds pushing the boundaries of innovation even further.
The acquisition.
Also expands our data science and engineering organization globally.
Last quarter, we announced the beta release of two new interactive features San view and free to play a predictive games.
Throughout Q3, we continue to iterate on each and expanded their rollout to additional lease.
We're very excited about the potential to further engage our subscribers and ultimately to become gateways to real money wagering.
Here's a quick video.
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Thank you.
Yes.
Okay.
Our wagering business also continues to evolve.
We are transforming how consumers watch and engage with live TV with our first generation integrated Bubo Sports book, which launched November 3rd and our first state Iowa.
This is the first of a healthy pipeline of other states, where we plan to launch in the ensuing months, which will allow us to unlock the scale of our growing subscriber base driving down bedding acquisition costs.
In addition to serving as an important new on ramp to our platform. We believe this will over time improve engagement and retention, while driving monetization and advertising sales.
We believe only football TV has brought to market the seamless connection between streaming video and our mobile betting app.
We see ourselves in the very early innings of an enormous opportunity to innovate.
While we are very pleased with our progress to date, we are taking a very measured and deliberate approach as we operationalize This initiative.
So in summary, I am exceptionally proud of our execution this quarter.
We are building a category defining streaming experience that will achieve a strong flywheel driving subscriber growth increasing engagement and enhancing monetization, while also attracting advertising dollars to a high quality premium paying audience.
All while we continue to benefit from our optimal position at the intersection of three Megatrends. The secular decline of traditional TV the shift of TV AD dollars to connected devices and the rapid adoption of online sports wagering.
I look forward to updating you on the progress and will be on Twitter later, this evening to interact with shareholders and now I'll pass it over to Simona to discuss our Q3 financial highlights and raised guidance for 2021 Simona. Please thank.
Thank you David and good afternoon, everyone I'm very pleased with our strong third quarter results as we exceeded our outlook and made significant progress in delivering efficient top line growth and margin improvement.
Third quarter, we delivered at triple digits year over year growth in both subscription and advertising revenue, taking overall revenue up 156% to $156 7 million up 20% sequentially over the second quarter subscription revenue increased 158% year over year to one out of $38 1 million.
And by strong growth in subscribers numbers, an article we ended the quarter with 945000 subscribers, an increase of 108% or 263000 net additions when compared to Q3 2020, we delivered at this robust growth through acquisition efficiencies as well as improvements in retention, resulting from our <unk>.
Interactive product and curated content offering subscription artful expanded by 10% year over year to $66 31, as we saw more subscribers, taking our premium offerings.
<unk> grew 10% year over year to $8 23 Sands advertising is a key component of our growth and monetization strategy and we saw continued strength on this front.
<unk> sales were the highest to date in the third quarter of 2021 surgery, one either a 47% year over year to $18 6 million and accounted for 12% of total revenue. The strong results for our advertising business were driven by the strength in our subscriber growth, increasing CPM and fill rate.
Optimization as expected we saw a large influx of subscribers within the last few weeks of September as these new subscribers become more familiar with the platform and mature into long term subscribers, we expect to expand their monetization further switching now to profitability, we made significant traction towards our long term goals delivering it in a drastic.
Contribution margin of 12, 4%. This was up 189 basis points year over year, when compared to our normalized Q3 2020, ACM of 10, 5%, which we report in our earnings last year. As a reminder, our Q3 2020, a C M of 16, 1% reflected unusable.
Timing of content deals in July 2020, our contribution margin expansion in the quarter was driven by the improvement of advertising and subscription article as well as by the continued data driven optimization of our content offering.
Position us well to continue making deliberate strategic investment in content technology and infrastructure to optimize our market position and grow share while driving long term margin expansion occur.
Fortunately our strategic investments have resulted in the third quarter unexpected expenses increased in absolute dollar basis year over year. However expenses continued to grow significantly less than our revenue growth and accounted for 166% of total revenue in Q3, 2021 significantly less than in 2019 and in 2000.
20, underscoring our continued focus on driving operating leverage in the business.
Within expenses I would like to highlight household subscribers related expenses, which primarily consist of content cost accounted for 91, 5% of total revenue in the quarter, an improvement of eight five percentage points compared to the prior year period, and our sales and marketing expenses as a percentage of revenue declined from 36% in the third.
Reported <unk> thousand 22, 32% this quarter showcasing our efficiency and growing our subscriber base is the results of this continued operating leverage we are achieving in material year over year improvement in adjusted EBITDA margin from minus 77, 6% to minus 51, 9% net.
Net loss in Q3 was $105 9 million and included approximately $21 million or noncash expenses.
<unk> based compensation remeasurement of warrant liabilities and amortization of intangibles and that discount.
In the quarter was negative 74 cents compared to a loss of $6 20 in the third quarter of 2020 adjusted EPS in the third quarter 2021 was a loss of 59.
Excluding the noncash impact of stock based compensation, the remeasurement of warrant liabilities and amortization of intangibles and that discount.
Expenses incurred for the launch of our wagering business impacted EPS and adjusted EPS by five cents in the quarter.
Now turning to the balance sheet, we ended the quarter with $398 $5 million in cash cash equivalent and restricted cash. These include a $70 million net proceeds in the quarter from our at the market offering as well as $7 million in interest payments and $33 7 million cash outflow related to wagering.
In connection with our market access licensing deals as well.
As previously highlighted.
Defining of our $500 million ATM in August as part of our ongoing capital optimization strategy to build Optionality to fund growth initiatives, while further strengthening our balance sheet operating cash flow in the quarter. It was negative $55 $7 million inclusive.
Inclusive of $5 million or nonrecurring payments $5 2 million associated with of wagering business and $7 million of interest payment for the 2026 convertible notes.
Moving on to our outlook with a strong performance in the third quarter of 2021, we believe we are well positioned to continue to execute on our long term revenues and margin goals and therefore, once again, increasing our full year 2021 revenue guidance to $614 $5 million at the midpoint.
This updated number represent a 135% increase year over year up from an increase of 116%, reflecting our prior guidance. Similarly, we are increasing our I ended the subscriber guidance to 1.065 million at the mute.
Point of the guidance up 94% year over year is guidance implies full year 2021, net additions of approximately 517130, 122% higher than our full year 2020 net additions of 232000.
Our current guidance does not include any revenue contribution from our sport wagering business, nor from our recently announced molecule and it is an AI acquisitions in closing, we're very pleased with our performance this quarter and we continue to efficiently drive robust growth and operating leverage. Thank you for joining our call today, we will now take your question.
Zone.
Thank you David. Thank you Simona were now turning to the Q&A portion of our call. We ask that in the spirit of timing that you limit yourself to two questions. Please and our first question comes from Jed Kelly with Oppenheimer Chad Great to see you. Please go ahead.
Okay, great. Thanks for taking my question.
Two if I may one behind the acquisition the strategy to expand internationally versus if you look at the U S. We still have a lot of opportunity for growth.
Still a couple.
Channels with a lot of sports content that you don't have on your platform. Thank you.
Talk about the acquisition strategy and then on.
The sports book, Iowa, any early learnings you can share or what the attach rate with subscribers. Thank you.
Thank you Jed.
As always excellent questions.
As it relates to the acquisition strategy I think we've said many times, if we are going to be opportunistic and I think there's.
Two different acquisitions here.
One is technology based I will talk about Edison AI first we're really really excited about this company. It actually provides foundational backend tech for our company.
If you think about it you'll be able to extract metadata from the video in real time. So a lot of these things that you and I discussed.
Off line about how do you see this business changing over time, you can think about the number of use cases with technology like this so youll.
Youll be able to in the very short term sink the video to the data stream that is very important and you can do that by capturing clock data.
Theres other use cases for this over the long term that will touch on the video experience at the core things like improving <unk>.
The ours as it relates to overtime.
Obviously, there's going to be advertising opportunities as well because you'll be able to extract a lot of the contextual.
You know the.
Contextual value out of the frame that is currently being displayed so with that type of technology. We think we're really well positioned to continue to focus on our integration strategy.
As it relates to Molotov I think there are two very important reasons why we did this deal one is as you know.
There's some significant headwinds here in the U S with respect to.
The labor situation, it's very difficult to hire engineers Molotov has a very very strong team of 100 plus.
If you think about it our businesses are very similar.
In many respects and so there's an alignment of technology and infrastructure tooling.
And also obviously the operational model. So we think that we could pretty much integrate relatively quickly that is kind of our goal in the short term.
And that should really improve development velocity. So that's sort of the first point on that and it allows us to also plant a flag in another country to allow us to access even more talent. So that's a that's probably one of the more important reasons. The second is it's the number two streaming application in France, which is the second largest European.
In market with over 60 million households, so with 4 million monthly active users.
We thought that this was a great opportunity for us to learn about their business model remember, we do not have a freemium model and just.
So just to highlight again, what that is it's a freemium model really means that you have a free tier of content.
Which in their cases live TV channels that they then use to up sell to a paid tier now when we think about our capabilities here in the U S and the knowledge that we continue.
To really garner this is going to give us an opportunity to really leverage what we know in that market as we develop a scalable global platform. So this doesn't in any way impact our focus on the U S and I hope given that 1 million subscriber number that makes you comfortable that we are completely focused on.
Driving additional subscribers in the U S and really scaling out our business.
And the second part of your question if I recall was about.
The book as you know we lost rates in Iowa, Yeah. We launched November 3rd look we're very excited we did what we said we were going to do and this was not an easy task. It was not an easy lift to launch a sports book in less than 12 months.
And so we've been working with regulators and we shared with you our live sync feature.
So far it's very early I mean, we've been live for a week.
I'll have to sort of take our time over the next couple of weeks to really better understand what we're seeing but so far I think what's interesting is that there is interest from our subscribers to.
To play that's a very important piece here. If you think about the reason why we did this the whole point of this was really to reduce the cost of entry.
Number one and number two is to create very attractive user economics. So we think that what we've seen sort of in the sort of early moments is really important what I will say is that the market access licenses are probably an area, where we're going to focus on throughout 2022, because given what we've seen at least in the first few days, we want to take advantage of our growing subscriber base.
So when you have a million people that you can talk to every day and you've seen how successful we've been with our attachment selling over 2.2 million attachments. This year, we're very comfortable in our ability to actually create a new revenue stream and upsell existing customers.
Great. Thank you.
Thank you for your thoughtful questions and our next question comes from <unk>, who is with Evercore sweater always good to see you.
Please go ahead.
Thanks, Allison, let me try two please.
David what would be your job.
Investment for.
Your next year.
And in terms of resources as well as the focus.
Your team and then a quick follow up on churn.
Churn improved on a year over year basis, how did it trend sequentially. Thank you yes.
Yes, so very.
Very good questions.
I'd Love to tell you about our go forward strategy.
But obviously if we tell you then we're going to make it very difficult to be able to acquire.
Assets the way we've done this year, which we're very happy about so I think what I'll continue to say is we're going to be opportunistic we're looking for companies that fit culturally number one because this is a performance driven company, we continue to execute quarter over quarter and year over year, So but again, it's something we'll continue to look at.
And refined over the course of 2022.
With respect to churn as you said 78.
Minus 78 basis points of churn, we're very happy with that we said that our goal this year was to get churn.
In a place where we're very comfortable.
I would say churn is relatively flat.
<unk> sequentially, but remember we also had the Olympics in July which is typically a law.
Of these one off events drive significant churn, but we have been able to really mitigate.
A lot of the churn that we felt would put us at risk for the third quarter as you can see it really drove up our subscriber numbers. So we're very happy about that we're also happy about our reactivation numbers that have been extremely strong and all of that is really related to the content offering that we provide to our subscribers as well.
As the product improvements that we're seeing so.
We're very happy with this quarter and looking forward to Q4.
Thank you David Thank you.
Sure. It's always good to see you and thank you for the questions. Our next question comes from Laura Martin.
With Needham.
Hi, there, David So fourth quarter as a public company fourth quarter and beaten range. So these are absolutely the numbers again.
That's why we're here. Thank you so much okay. Two questions for you. So one is the NFL ratings are astronomical this year and that seems to be a key catalyst to driving your extraordinary subscriber growth. My question is.
Shipper Bowl Sunday.
What are you going to do to try to hold onto these guys Jay increase their longevity past the end of the NFL season.
With that one.
I think that's a.
Great call NFL season has been tremendous.
For us, but let's not forget we also had a full season of college football. So we're super excited.
About the return of college sports that has certainly had an impact particularly in September.
Look at we're focused on continuing to improve our product.
We're looking for ways to kind of improve.
Certain features that will drive engagement I think this cohort the September cohort is actually quite interesting, we actually got to 96% viewership of sports on the platform. This is by far the largest number or a percent greatest percentage of sports viewership on the platform ever I think the last record was about <unk>.
93% or 94%. So when do you think there's no more room. There is certainly is again, we're focused on continuing to do what we did in first quarter of 2021 will focus on continuing to upgrade our product and hopefully as we get into the first quarter, we will be able to talk more about our free to play capabilities as well as our predictive.
Games.
And what we believe to be the sports book entry point into some of these states will also.
Improve retention.
Okay, that's super helpful.
When I think about CTV.
You had really good the highest CTV revenue growth of any company, that's reported which has actually same sort of thing.
I love, what it's doing to your gross margins. So you really have strong gross margin of our delivery is most of that coming from advertising David or is some of it actually coming from subscription that's a variable cost business subscription. So I'm just trying to figure out if you're really getting leverage on the variable cost piece of the business in a different in addition to advertising.
We did mention in our shareholder letter as well as in my opening comments that given the scale that we're experiencing to date, we're going to start to continue to see some level of escape velocity. When you start to experience that you typically have some control.
In terms of the conversations we're having with our content partners as you know we've continue to update our content portfolio.
We made some changes at the end of the second quarter, which we believe positively impacted.
Our margin profile as it relates to the variable costs on the advertising front, where we're continuing to see a lot of strength in that area you see advertisers not only moving from TV, but theyre moving into sort of data driven advising.
Advise and that's kind of an area, where we are starting to really make an impact.
And I also think that.
What's compelling is the fact that we have three levers that we can pull and when you look at our CPM year over year, it's still relatively low of which was up about 4% from about 'twenty, one and change to 'twenty three so if you think about.
What we have here. This is a high class problem, what I like to say, there's room about 50% growth in the CPM, assuming all else stays equal. So you can really start to understand the opportunities we have in the advertising space and what it can really do to drive margins over the long term.
Thanks, David.
Thank you. Thank you Laura as always great questions and our next question comes from Dan Salmon at BMO, Dan. Please go ahead.
Alright, Thank you Alison and good evening everyone.
Hey, David Hi, Simona.
So David Malthouse.
As you said leading platform in France.
We've also got a little footprint in Africa standing there.
The Canadian business in Spanish business. So what is the scope of your international ambitions right. Now you seem to have a healthy part of North America and EMEA covered I mean should we expect APAC and South America to come next.
And then just the second one there's some wording in the shareholder letter about crossing the 1 million Mark that gives you some better most favorite nation protection can you just speak to that a little bit more specifically and if there is some <unk>.
Myles stones in your contracts that passing that activates.
Activates the particular, yeah. So Dan it's good to see you it's been a while.
Look your first question is about our international ambitions. This company has one massive ambition. We are looking for global domination, we're doing that we're demonstrating quarter in quarter out that we're able to do this in the United States.
Or just to quickly touch on our net adds 263000 net adds if you look at the traditional pay TV churn level. It was roughly around one two to one three we took in about 20% of the traditional churn internet subscribers.
In the third quarter, so when I think about that and I think about where I believe the market will trend to over the next five or seven years. It gets me really excited our team is performing exceptionally well in the United States and so what we've decided to do is to take our time internationally pick assets that we believe might.
Provides significant value again, the cultural importance.
Is something that I really have to stress because we our performance company. So I'm not saying that we're going into Latin America or any other region, but if we see an asset that we believe will create a lot of value for the business. There's no reason why we shouldn't.
Leverage our.
Our market cap to be able to to acquire an asset, but I also wouldnt overlook the Edison AI.
Transaction because it is transformational I don't think people really understand how transformational computer vision really is you can track players you can track frame accurate data extract metadata from live real time.
Video and really leverage that across advertising across product sales.
Across everything that we do so to me. This is an extremely important acquisition of well it sets us up really nicely.
For our global product last but not least on your question around you mentioned Molotov and Africa and all these other questions. One of the reasons why we really like Molotov. In addition to obviously the 4 million monthly active users and 100 plus.
The team that they have to be able to really sort of.
Increase the velocity of our development team, but they are also available in these other countries, but the key is the technology that they've developed that allows them to very efficiently localized in different geographies. So again, if you think about the DNA approval, we're all about opportunities moving quickly leveraging <unk>.
Ada and this provides the one thing that I value most in the world, which is optionality.
Thank you.
Dan. Thank you for your thoughtful questions and our next question comes from Jim Goss with Barrington Jan.
Always good to see you. Please proceed with your question.
Great.
Hi, David Hi, just money I don't think.
When you're talking about the global ambition and I Wonder if you might frame with domestic growth in <unk>.
Terms of what sort of page three.
And I expect over the next several years.
And who do you think you'll take share from I assume you're taking share from broadcasters, but do you think you're also taking share from some of the competitors in your space.
Yeah. Thanks for the question James So I think in terms of the overall growth that we have in the business as you see with the guidance of about a significant number to David's earlier point, we are taking on a significant portion of people that are coming out of the regular traditional cable offering we are taking for a significant portion of that and as you can imagine our market.
Share is expected to continue to grow we seem to be in front of your body space as well.
So I think that is definitely.
Any influx of subscribers coming from the traditional cable ecosystem as well as such.
Subscribers that are appreciating the features that we provide in our platform and allow us to attract them for our platform from our existing.
Space is affected by you know the most likely market share increase within the virtual reality.
First of all let's talk about the usage patterns.
I assume most viewing is going to be at home, but are you getting an increasing number of users using our areas.
Ramon.
When they're traveling yesterday et cetera traveling.
Yeah. So we're seeing a lot of viewership on our connected TV that is actually really good for advertising purposes.
As well as to your point, we offer the flexibility of an app that is a downloadable usable on many different platforms and items story is actually allowing us to provide the flexibility for people across the board. There is a benefit that we think is a is resonating well with the subscribers.
Yeah.
Okay.
So I ask.
Could you flesh flesh out the concept.
The.
The games.
Betting games, what exactly do you think you were going to bring to the table and who would you how would you sustain engagement.
Area.
So.
Jim could you ask that question again, hi, it's David sorry, I couldn't hear that.
Okay. You were are you all.
Also talked about.
Some additional types of games.
Games that you would engage users in our user for sustainable engagement.
Just wondering what what you had them out in that area. Yeah. So we've been very focused on free to play games.
So and I think we've we showcase the video where you can see you can get into this sort of.
User initiated format.
Where you can watch an event and then play these predictive game. So you could ask questions like.
Will they score touchdown will they take a field go Willy throw a pass.
Will there be an interception.
Will this player play so all of these sort of engaging questions. During the game, we think adds a lot of value and we've seen that we've been running a bunch of tests on our carnival games and we've seen engagement increased by anywhere between 30 and 40%. So we're going to continue.
To work on that and created a platform in which we think users will engage more and if they are engaging more as you know that impacts your advertising sales.
And also your attention so the more that we can get people to stay on the platform. The better. The other thing I think that is also important a bit secondary at the moment, but I think it will come to the forefront pretty quickly in 2022 is the fact that we are now isolating players that or where people that like to play. These games. So the question is if you're a casual better.
Or someone who likes to play these games will you potentially participate in a bet for events that you typically we can tell which you went out you pick fuel goals you pick football games. He picked soccer games that gives us.
Another edge and trying to reduce that cost of entry and drive subscribers into our betting funnel at almost no cost. So that's sort of the plan with that and again this acquisition of Edison AI is important because it allows us to sink a lot of this information allows us to learn what people are viewing and watching.
And then on a discrete basis, we'll be able to provide hundreds of gains thousands of game. So all of this is kind of something we've been talking about for a year what's interesting is.
Netflix is doing the same thing right, they're launching their gaming platform too.
Gauge with the with consumers to extend their brand value of <unk>.
Of shows like squid game and Stranger things. So these are all things that we felt we've been pretty much first but we're starting to see other companies.
Develop a platform in similar ways. So we're super excited about that.
Thanks very much. Thank you. Thank you James Jim. Thank you so much and our next question comes from Zach Silverberg with Baron Berg Zack good to see you.
Please proceed with your question.
Hey, good evening. Thanks for taking my question. So my first one is sort of on your partnerships with NASCAR the jets the Cleveland Cavaliers.
So what are these partnerships mean for the growth of the sports, but customer acquisition market entry.
What sort of partnerships can we sort of.
See on the horizon.
Great question, Zach look we're getting into this space, we're getting our feet wet right now we want to make sure we have certain partnerships to be able to leverage IP with some of these major partners. As you know we've now exceeded 1 million subscribers, we want to build on that brand equity and we're looking for those right relationships and as we.
We continue to develop our gaming strategy, we will look to expand our partnerships right now we're pretty happy with the partnerships we have in place.
Got it.
AD revenue side of the business can you sort of just talk about what's driving some of the stronger AD growth year over year.
Yeah, I mean again it's.
It really comes down to basic elements of advertising.
As I just mentioned there are really three components that drive advertising sales for the company right. Now one is the fill rate number two is the CPM and number three is the viewership hours. So those are the three levers that you can pull to drive now the good news is we don't have to drive all three of them every quarter, we can drive sometimes it's three sometimes it's too sometimes.
It's one and so this quarter what we've seen is a combination of a few elements. One is the increase in CPM that we're seeing from somewhere around the 'twenty one to 'twenty three range, which really again keeps me excited because there's a long way to go to hitting the CPM that we're typically seeing on connected devices, which is 30, plus so that just should indicate to you that there is strong.
Our growth the other one is the.
The viewership viewership hours I'll leave for Aladdin and then there's the fill rate and the fill rate again, we have opportunities we've been testing 15 second.
Units versus thirties, and advertisers seem to really like those so we're going to continue.
To focus on kind of CPM and fill rate for now but the good news is we've got a long way to go viewership hours continue to increase.
Obviously, there was an influx of subscribers at the end of the third quarter, which took the number down somewhat but on a year over year basis, we feel very comfortable we will continue to drive engagement. So advertising certainly a very exciting space for us and we will be investing.
Into our AD tech to be able to drive those numbers higher.
Thank you.
Zack Thank you for your questions and our final question is with Dillon Heslin with Roth.
Please proceed with your question.
Idling.
Sorry, I can't we can't hear you cut out.
Oh, you're muted doing daily and you read it.
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My apologies no worries at all of Us.
Thanks for taking the questions.
Congrats on a million subs.
On some of the attach rates.
121, 3 million attach rate this quarter.
Can you talk a little bit about <unk>.
That makes sense between your existing subs, who are deciding to.
Sorry to up their plan later on versus a new suddenly comes on at that higher than that.
Yeah, well I think it's clear that it's not just new subscribers coming in because we saw $2 2 million attachments at the end of the quarter. So.
That would that's telling you is that for every average subscriber we were selling in two three.
Products, so it's actually across the board.
What we do typically see seasonally is that in the third and fourth quarter people subscribe to our sports plus packaging, which includes the Red zone and so we anticipate we've seen this again.
Three years that there is some decline.
In in <unk> after the NFL season, due to just people taking down their package, which typically includes red zone.
Got it and then as a follow up on the sales and marketing expense I know you talked about that being down as a percentage of revenue.
300 basis points year over year, but it's up over double quarter over quarter in absolute dollar terms I mean, obviously you had the subs tabak.
To back that up.
Where do you start to think you can see that absolute dollar figure plateau, well you know it's tough to look at it from an absolute dollar value perspective, because right now you're talking about a company that is just six years old right. If you look back at 2020, the average IPO. The average age of a company was about 12. So this <unk>.
Company is incomplete growth mode. So when I look at revenue or I should say sales and marketing as a percentage of revenue, whether it's roku or draft kings or anybody else or Netflix for that matter, it's relatively high and so roughly around that 30% to 35% range is kind of where we want to be but.
At the same time that number has come down to some degree and we feel comfortable our average.
Subscriber acquisition cost is in the range that we've always guided to since testing the waters, which is between one and one five times our first month's ARPA now note that as our first month's ARPA continues to increase we obviously can spend more money.
Attracting subscribers one thing that is important we have added extremely high quality subscribers over 2021 that is reflected in the continuing improvement in retention and frankly, our September cohort for this NFL actually outperformed anything we typically would see so.
Again, we're super excited about where we are in terms of spend and the quality of customers. We continue to attract to the platform.
So that on that deal what I mean, ultimately the whole improvement in our operating leverage is driving efficiencies in marketing as well as all the other expenses you see also on the content side with subscriber related expenses going down eight five percentage point comparing to last year same quarter. So that will continue as we get a fact that in our improvement in adjusted EBITDA margin any generally in our margins.
Until now I'll, just say one thing we are at the very early stages of the evolution of this business. It's actually quite remarkable I just want to give a quick shout out to the team. They have done a phenomenal job expectations. As you know are extremely high.
The competitive set is.
Is very difficult.
For us to deal with our numbers are public everybody is looking at them. So again I just really want to give a quick shout out to the team the retention team the marketing team the product team the engineering team the <unk> Sports network team.
The finance team. So all of these groups are really working cohesively to be able to drive value across all of our kpis.
Thank you I appreciate it.
Thank you. Thank you.
Thank you and this concludes the Q&A portion of our call. We thank everybody who participated for your time and your thoughtful questions.
We look forward to continuing to update you on the progress of the business in ensuing quarters.
I would encourage you to any extent that you have additional questions to reach out. Thank you again, and we look forward to speaking to everybody. Soon thank you. Thank you.
Yeah.