FuboTV (NYSE:FUBO) stock enjoyed a breathtaking rally after posting its second-quarter results on Aug. 11. The surge ended abruptly on Aug. 13 after the company announced that it would raise cash through a stock offering.
If it wasn’t for that announcement, FUBO stock could have reached its 52-week high of $62.29.
FUBO Is on Fire
On Aug. 10, fuboTV, a leading sports-first live TV streaming platform, disclosed that its sales had soared 196% year-over-year to $130.9 million. Its revenue from subscriptions nearly doubled YOY to $114.4 million. Fubo’s all-important average revenue per user per month increased 30% YOY to $71.43.
FuboTV’s growth is just getting started. Once the firm introduces gambling, its revenue increases will accelerate.
In Q2, fuboTV added 91,291 net subscribers, and it had 681,721 paid subscribers at the end of the quarter. The firm’s CEO and co-founder, David Gandler said on its earnings conference call that three factors had driven fubo’s advertising sales. Specifically, the company benefited from a higher fill rate, a higher cost per thousand (CPM) viewers rate, and an increase in the number of hours watched by its subscribers. Last quarter, its customers spent 245 million hours watching fuboTV.
Males around the age of 42 make up much of fubo’s audience base. Since the average age of fubo’s audience is significantly younger than cable’s, marketers are likely more interested in buying ads on fubo than on cable. As a result, Fubo’s CPM ad rate, which is still in the low $20s, has meaningfully increased, and its CEO thinks that it could rise to $35.
Furthermore, fubo’s customers have an average household income of $85,000 and consequently attract more interest from marketers than cable’s audience. Additionally, fuboTV can leverage its first-party data to grow its advertising revenue.
Product Positioning
To drive its business growth further, the company will increase its subscriber base. Then it will deliver a gaming product that customers will enjoy. The company’s strong quarterly results indicate that it knows its customers well. Also, to accelerate its growth, fubo is enhancing its product in general.
fubo’s ARPU and gross margins could be indicators of the company’s growth. Management expects its gross margins to reach 50% and predicts that its ad ARPU will climb to $10-$15 in the long-term.
Catalysts
In Q2, the company launched partnerships with LG and Vizio. fuboTV’s Q2 results benefited from the launch of a free-to-play, beta-phase product, which led to a 25% -37% increase in engagement for its content.
Fubo said that acquiring the broadcast rights to the FIFA World Cup qualifying matches added a new skill set for the company. It plans to develop more products built around its sports-first content going forward
Fair Value
Most analysts rate FUBO stock as a “buy,” and their average price target on the name is nearly $45.00. With its market capitalization a fraction of that of Roku’s (NASDAQ:ROKU), fubo’s valuation is poised to expand further. fubo’s user engagement and subscriptions are growing at a healthy pace, while both trends show no signs of slowing. Consequently, investors should be willing to accumulate the stock at its current levels.
Fubo’s $500 million stock offering is the bad news. On Aug. 13, the company entered into an agreement to sell up to $500 million worth of its shares. While this loads the company’s balance sheet with cash, it dilutes the company’s shareholders.
But since a stock market correction would send Fubo’s shares lower, it made sense for the company’s management to take advantage of the high stock price before that could happen.
The Bottom Line
The viewership for the sports streaming content market is growing. fuboTV is at the center of this growth trend. fubo demonstrated that it can meaningfully grow its subscriber base and increase its revenue.
The stock has the potential to reward investors. Consider establishing a small position in the stock and buying the shares aggressively if they dip again.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
