Business Context and Reporting Period
fuboTV Inc. filed its Form 10-K for the fiscal year ended December 31, 2020. The company operates a sports-first live television streaming platform funded primarily by subscriptions and advertising. The April 1, 2020 merger with fuboTV Media Inc. materially changed the business and reporting perimeter: 2020 results include FaceBank pre-merger activity from January 1 through March 31 and the combined company from April 1 through December 31, while 2019 primarily reflects the pre-merger FaceBank business. Accordingly, reported annual results are not directly comparable.
At December 31, 2020, fuboTV reported 547,880 paid subscribers, versus 315,729 at December 31, 2019, based on pro forma operating metrics. Content hours streamed increased to 544.9 million from 289.7 million.
Key Financial Metrics
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Total revenue | $217.7 million | $4.3 million |
| Subscription revenue | $184.3 million | None reported |
| Advertising revenue | $24.9 million | None reported |
| Operating loss | $479.9 million | $38.9 million |
| Net loss | $599.4 million | $38.1 million |
| Net loss attributable to common stockholders | $570.5 million | $35.0 million |
| Basic and diluted loss per share | $12.82 loss | $1.57 loss |
| Cash flow from operations | $149.0 million used | $1.7 million provided |
| Cash flow from investing | $1.5 million used | $1.5 million provided |
| Cash flow from financing | $279.1 million provided | $4.4 million provided |
| Cash and cash equivalents | $134.9 million | $7.6 million |
| Working capital | $70.6 million deficiency | Not clearly comparable in the filing text |
| Total debt and borrowings | Approximately $28.8 million recorded debt | $48.4 million |
Operating expenses were $697.6 million, including $204.2 million of subscriber-related expenses, $63.1 million of sales and marketing, $30.2 million of technology and development, $77.6 million of general and administrative expense, $44.0 million of depreciation and amortization, and $248.9 million of impairment charges. The resulting operating margin was approximately negative 220%.
Pro forma fuboTV metrics, which management states are intended for operating comparisons rather than GAAP annual results, showed monthly ARPU of $62.84 versus $53.73, monthly ACPU of $56.48 versus $55.37, and adjusted contribution margin of 10.1% versus negative 3.1%.
Material Changes Versus the Prior Comparable Period
- The merger added the fuboTV streaming business to the reporting group and makes the reported 2020 and 2019 GAAP results not directly comparable.
- Pro forma paid subscribers increased approximately 73% year over year, and content hours increased approximately 88%.
- Subscription and advertising revenue became the principal revenue sources in 2020; the company reported no comparable 2019 subscription or advertising revenue in the consolidated income statement.
- Operating cash flow deteriorated from $1.7 million provided in 2019 to $149.0 million used in 2020, reflecting continued operating losses and working-capital needs.
- The company raised approximately $181.0 million net through an October 2020 common-stock offering, substantially increasing liquidity and equity capitalization.
- Impairment expense increased substantially, including approximately $148.1 million of goodwill impairment and $100.3 million of legacy FaceBank intangible-asset impairment.
- Other expense increased to $129.2 million, driven principally by an $83.3 million change in the fair value of warrant liabilities, $24.5 million of debt-extinguishment loss, $18.6 million of interest and financing costs, and an $11.9 million loss on Nexway deconsolidation.
- The company deconsolidated Nexway on March 31, 2020 and sold FaceBank AG and its remaining Nexway investment during the third quarter.
Guidance, Outlook, Risks, and Unusual Items
Management expects continued substantial losses and negative operating cash flows while it invests in content, technology, marketing, infrastructure, and expansion into sports wagering. The filing states that October 2020 equity proceeds and a subsequent $391.4 million of net proceeds from convertible notes provide sufficient liquidity to continue as a going concern for at least one year from issuance of the financial statements.
The company plans to use its sports-first platform to expand into interactive gaming and wagering. It targeted free-to-play gaming in the third quarter of 2021 and a sportsbook application by the end of 2021. In February 2021, it acquired Vigtory, a sports betting and interactive gaming company; the purchase-price allocation had not been completed as of the filing date.
- On February 2, 2021, the company issued $402.5 million principal amount of 3.25% convertible senior notes due 2026, with approximately $391.4 million of net proceeds.
- The PPP loan balance of approximately $4.7 million at year-end was repaid in February 2021.
- At December 31, 2020, approximately $20.0 million of debt owed to AMC Networks was secured by substantially all assets of fuboTV Sub. The AMC loan matures in April 2023 and includes financial covenants and a minimum-subscriber covenant.
- A $4.6 million CAM Digital note was in default due to nonpayment of principal and interest, although holders had agreed to forbear from exercising remedies while negotiations continued.
- The company identified material weaknesses in internal control over financial reporting relating to merger accounting and controls over non-routine transactions. Management’s remediation efforts were ongoing, and disclosure controls were not effective as of December 31, 2020.
- The company disclosed restatements related to goodwill accounting and the accounting for warrants issued with common stock in 2020 filings.
- COVID-19 disrupted advertising markets and live sports availability but also accelerated migration from traditional pay television to streaming. Future effects remain uncertain.
- Key business risks include intense competition, high and sometimes fixed content commitments, subscriber churn, dependence on cloud and distribution partners, advertising monetization, cybersecurity and privacy obligations, regulatory uncertainty, and the substantial licensing and market-access requirements for wagering.
- The company disclosed securities class actions filed in February 2021 and a derivative action filed in March 2021. Management believes the claims are without merit and intends to defend them.
Investor Verification Items
- Verify the appropriate comparable period because 2020 GAAP results include the merger only from April 1, while management’s subscriber and margin metrics are pro forma and non-GAAP.
- Reconcile the reported $134.9 million year-end cash balance and $70.6 million working-capital deficiency to post-year-end financing proceeds and near-term obligations.
- Assess the sustainability of subscriber growth, ARPU expansion, and the 10.1% adjusted contribution margin against fixed content costs and minimum guarantees.
- Review the CAM Digital default, AMC Networks covenant requirements, other debt obligations, and the cash or share-settlement provisions of the 2026 Notes.
- Evaluate the material weaknesses, restatements, and the status of remediation before relying on reported financial information.
- Examine the assumptions supporting the $478.4 million goodwill balance and acquired intangible assets, including potential future impairment risk.
- Assess the regulatory, licensing, market-access, payment-processing, and operating risks associated with the planned sportsbook and gaming business.
- Review the subsequent litigation, the Vigtory acquisition accounting, the new office lease, and all post-year-end equity and convertible-debt issuances.