Yahoo Finance fuboTV Inc. (NYSE:FUBO) Q1 2024 Earnings Call Transcript
fuboTV Inc. (NYSE:FUBO) Q1 2024 Earnings Call Transcript May 3, 2024
fuboTV Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fubo First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Alison Sternberg, Senior Vice President of Investor Relations at Fubo. Please go ahead.
Alison Sternberg: Thank you for joining us to discuss Fubo's first quarter 2024. With me today is David Gandler, Co-Founder and CEO of Fubo, and John Janedis, CFO of Fubo. 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.fubo.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 full year and Fubo's strategy, and John will cover the financials and guidance. Then, we will turn the call over to the analysts for Q&A. I would like to remind everyone that the following discussion may contain forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding our financial condition, anticipated financial performance, business strategy and plans, industry and consumer trends, anticompetitive practices among our competitors and our response plan, including our antitrust lawsuit, and expectations regarding profitability.
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 include those discussed in our filings with the SEC. Except as otherwise noted, the results and guidance we are presenting today are on a continuing operations basis, excluding the historical results of our former gaming segment, which are accounted for as discontinued operations. During the call, we may also refer to certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are also available in our Q1 2024 Earnings Shareholder Letter, which is available on our website at ir.fubo.tv.
With that, I will turn the call over to David.
David Gandler: Thank you, Alison. Good morning, and thank you all for joining us today to discuss Fubo's first quarter 2024 results. We are very pleased with our strong start to 2024. Fubo again exceeded guidance with double-digit growth across key financial and operating metrics in North America during the first quarter. We ended the quarter with $394 million in total revenue, up 24% year-over-year, and paid subscribers at 1,511,000, up 18% year-over-year. Our ad sales business continues to be an expanding revenue source for Fubo. In Q1, we delivered North American ad revenue of $27.2 million, an increase of 21% year-over-year, demonstrating an accelerating business. We are also pleased to report that the first quarter marked yet another period of steady progress towards achieving positive cash flow and adjusted EBITDA.
In Q1, adjusted EBITDA margin reached minus 10%, representing a significant improvement of 796 basis points or an increase of approximately $18 million in absolute dollars compared to the first quarter of 2023. Additionally, Q1 represents the fifth consecutive quarter of year-over-year improvements in free cash flow and adjusted EBITDA, underscoring our forward momentum in the right direction. Notably, we've grown our market share in the pay-TV space since our October 2020 listing on the NYSE. In Q1, we achieved our lowest subscriber acquisition cost to average revenue per user ratio, or SAC to ARPU ratio, well below the low end of our target range of 1 time to 1.5 times. This demonstrates our increased efficiency in customer acquisition. Additionally, March 2024 represented the lowest churn rate for any March on record for the company.
These results are demonstrative of Fubo's continued ability to grow quickly, efficiently and effectively since our 2015 founding, performing well against benchmark companies across the media and tech sectors. While these statistics are impressive, when comparing our growth timeline to industry leaders and applying Moneyball metrics, these results are even more profound. For instance, Fubo achieved $1 billion in revenue in 2022, just seven years after it's founded. This achievement is particularly striking when compared to larger, scaled companies like Netflix and Roku, which reached the $1 billion revenue mark 10 years and 17 years after their respective launches. In 2023, Fubo generated $2.6 million of revenue per employee globally, a figure we believe we can improve further based on our latest projections.
We believe this sets Fubo apart as one of the most productive companies in direct-to-consumer streaming. For context, in the same period, Netflix also generated $2.6 million of revenue per employee, while both Roku and Spotify achieved less than $2 million during the same period. These examples highlight the strength of Fubo's tech stack and management team, which we believe underscore our position as a leading operator in the streaming market. Fubo operates efficiently each quarter, but we continue to be challenged by excessively above-market content licensing costs and other owners' contractual terms imposed by programmers. In the first quarter, we spent approximately 90% of our total revenue on content. The exorbitant fees imposed on us and consequently on our customers are well above the market.
The same is true of other owners' contractual terms, such as penetration rates. These issues are at the core of our current litigation against The Walt Disney Company, Fox Corp. and Warner Bros. Discovery. We allege that this JV has engaged in longstanding anti-competitive practices aimed at monopolizing the market, suppressing competition and depriving consumers of choice, affordability, pricing and innovation. The pending launch of those companies' joint venture is an existential challenge that we face, one that we are committed to meeting, in part through our suit to enjoin the launch of the joint venture until and unless the playing field in the industry has been leveled. Nearly 90 days after filing our lawsuit, while it remains early, we are encouraged by the progress we have made so far.
Notably, we were encouraged by the support received by our competitors, DIRECTV and Dish, who have filed declarations backing our motion for a preliminary injunction against the JV. Additionally, the U.S. District Court has granted our request for limited discovery and set a hearing date for our motion. We are eager to present our claims and preliminary injunction motion in court beginning August 7. Equally noteworthy, we have received very strong support from Capitol Hill. Congressmen Jerry Nadler of New York and Joaquin Castro of Texas are also concerned that the JV's control of 80% of broadcast sports content will negatively impact consumers and market competition. In April, the congressmen sent the JV CEOs a letter requesting that they address 19 concerns.
They also asked that these responses be shared with the Department of Justice. Just this week, eight co-signers representing companies like Fubo, DIRECTV, Dish, Newsmax, as well as multiple consumer advocacy groups sent a letter to Congress requesting they hold a hearing on the JV. And last but not least, we are also encouraged by the DOJ's reported investigation into the JV. At a minimum, all distributors, including Fubo, should receive fair and equitable terms from programmers. We should be able to offer our subscribers competitive pricing, packaging flexibility and the ability to launch innovative products that further enhance the sports streaming experience. This history of programmers forcing unfair deals is the reason why only a few days ago, Fubo customers lost the Discovery networks owned by Warner Bros.
Discovery. While negotiating a renewal, we also requested to license the Turner Sports Networks and asked for flexible packaging, the same packaging we expect the JV will offer. WBD did not want to discuss terms. Instead, they offered an extension for the Discovery content on the previous status quo terms, inflexible and above market. Meanwhile, Fubo has never strayed from our mission to delight consumers with an aggregated sports entertainment offering that leverages a personalized and intuitive streaming experience. From the outset, Fubo has been committed to tech innovation alongside sports. At this week's advertising upfronts, we announced several new offerings that enable our brand partners to reach passionate sports fans. These include interactive ads, pause ads, banner ads with enhanced targeting and what we are calling the Marquee, a branded carousel takeover displayed prominently on our home screen.
On the consumer tech front, we are introducing AI-driven playlists in beta within the DVR for basketball content. Imagine a playlist of just the three-pointers from last night's game or just the foul shots from a game you recorded last weekend. Our plan is to vastly improve for consumers our DVR experience, enabling user controls and maximizing the value of their DVR. With playlists, the consumer could personalize their sports recordings, watching and rewatching the moments that matter most to them. We believe this will also help drive tune in for our league and programming partners. In closing, Q1 represented another strong quarter of exceeding forecast and making substantial progress. We are steadfast in our execution and proactive in addressing these hurdles head on despite market challenges.
Our vision promotes a competitive streaming landscape that offers consumers choice, fair pricing and innovative products. This is the vision upon which Fubo was founded and is only achievable in a truly competitive market. I will now turn the call over to John Janedis, CFO, to discuss our financial results in greater detail. John?
John Janedis: Thank you, David, and good morning, everyone. I am pleased with our ability to deliver another quarter of strong results, including top-line growth and continued improvement across just about every key performance indicator. The first quarter results serve as support that our operational initiatives around bringing added effectiveness and efficiency to the business are working, and that our customer acquisition and retention actions are also having a positive impact. Above all, the results over the past few quarters provide further evidence that our business model positions us well for continued growth. Taking a look at the results for the quarter, we continue to see healthy top-line and subscriber growth, with global revenue growing by over 24% to $402.3 million, driven by 24% growth in North America and 7% growth in Rest of World.
We are also pleased with our overall subscriber growth, including 18% growth in North America to 1.511 million subscribers and a 5% increase in Rest of World subscribers. Our progress is not only reflected in our revenue and subscriber growth, but across key performance metrics as well. As an example, we continue to gain added leverage over our subscriber-related expenses, which decreased from 93% to 90% of revenue in Q1. We expect this trend to continue as we work to grow subscribers, further optimize our pricing, and continue to finetune our cost structure and mix of premium plans. In addition, ARPU in North America improved to $84.54, a meaningful improvement compared to $76.79 in the prior-year period. We also saw an improvement in ARPU in our Rest of World business to $7 from $6.57.
Importantly, we expect this trend in year-over-year ARPU improvement to continue. As it relates to some of the key revenue drivers, let me turn to our advertising business, a segment of our company that has been significantly improving and which we are confident will continue on this path despite the choppiness that the overall advertising industry continues to face. During the first quarter ad revenue totaled $27.5 million or a 21% increase versus the prior-year period. Turning to the operational side of the business, we continue to make progress in lowering expenses and increasing efficiency. Starting with gross margin, we saw a near 600 basis point improvement in gross margin to 7%, marking our sixth consecutive quarter of positive gross margin.
Our ongoing progress across the income statement also led to a significant reduction in net loss, with Q1 net loss of $56.3 million or a 32% year-over-year reduction from a loss of $83.4 million in the prior-year period. This resulted in a net loss margin improvement to negative 14%, favorably compared to a negative 25.7% loss margin in the prior-year period. This led to a first quarter 2024 per share loss of $0.19, a significant improvement compared to a loss of $0.37 in the first quarter of 2023. First quarter adjusted EBITDA loss also improved to a loss of $41.1 million compared to a loss of $58.9 million in the first quarter of 2023. Adjusted EBITDA margin was a negative 10.2%, a significant improvement from a negative 18.2% in the prior-year period.
This resulted in an adjusted EPS loss of $0.11, an improvement compared to an adjusted EPS loss of $0.27 in Q1 2023. In short, our results for this quarter and recent quarters underscore the progress we are making across the business. Importantly, we believe the direction the company is moving in reflects the potential and resilience of the business and positions as well to advance on our profitability goals. Moving to the balance sheet, we ended the quarter with $175 million of cash, cash equivalents, and restrictive cash. Looking ahead, we believe that we have sufficient liquidity to both invest in the business as well as continue to support our path to profitability, setting aside any potential impact of the launch of the sport streaming JV.
In addition, our ongoing efforts to identify efficiencies and maximize leverage across the business resulted in a $10 million improvement in free cash flow. We continue to focus on maintaining rigor and discipline around our company-wide costs and are pleased with the progress we made throughout the quarter. Now, turning to guidance. Our second quarter North America subscriber guidance is 1.275 million to 1.295 million subscribers, representing 10% year-over-year growth at the midpoint, while our second quarter revenue guidance projects $357.5 million to $367.5 million, representing 19% year-over-year growth at the midpoint. This leads to a full year 2024 North America subscriber guidance of 1.675 million to 1.695 million subscribers, representing 4% year-over-year growth at the midpoint.
This reflects our current outlook and, in particular, our exposure to potential industry volatility along with our intention to maintain discipline in subscriber acquisition costs relative to modernization, but does not reflect any potential impact from the JV. And for full year 2024 North American revenue, our guidance is for $1.525 billion to $1.545 billion, representing 15% year-over-year growth at the midpoint. Our projection of revenue growth outpacing subscriber growth reflects our expectation of continued ARPU expansion and improved unit economics. And for Rest of World, we expect 395,000 to 400,000 subscribers in the second quarter, representing 1% year-over-year growth at the midpoint, while our revenue guidance projects $8 million to $9 million, representing 4% year-over-year growth at the midpoint for the second quarter.
This leads to guidance of 395,000 to 405,000 subscribers for the full year 2024, representing a 2% year-over-year decline at the midpoint, and a full year 2024 revenue guidance of $33 million to $35 million, representing 4% year-over-year growth at the midpoint. Given the many unknowns related to the potential launch of the joint venture, including the outcome of our lawsuit and the DOJ's investigation, our guidance and our planned path to profitability do not reflect any potential impact of the joint venture launch to our business. In summary, we are pleased with our ability to post record revenue and to continue to have success across operational initiatives, while managing through an ongoing challenging environment. Our continued strong performance furthers our confidence in our future success and increases our belief that we are on the right path to deliver value to shareholders.
Operator?
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