Bank: “Buy fuboTV; Hold ProSiebenSat.1”
March 16, 2021
Sports broadcaster ‘fuboTV’, a now major multichannel video programming distributor (MVPD), and which streams its live content to a fast-growing portfolio of countries and devices, has prompted a major examination by investment bank Berenberg, and an upgrade to ‘Buy’.
The bank admits that fuboTV is “easily the most controversial stock we cover, but we remain confident in our Buy rating in light of favorable trends. As a sports-first vMVPD, we believe Fubo is well positioned to benefit from three powerful secular drivers: cord cutting, digital ad growth, and online wagering. However, investors have concerns about the viability of vMVPDs and Fubo’s competitive differentiation, and are sceptical about the success of a wagering product poised to compete against DraftKings and FanDuel. These are valid concerns, which is why we appreciate management’s long-term vision of transcending the vMVPD model to create a comprehensive streaming platform, and to do so in a measured and capital-efficient way. We believe fubo’s current valuation is justified by a conservative view of its vMVPD product alone; and wagering provides enough upside optionality, in our view, to merit a Buy rating.”
The bank says that fubo’s recent growth – from a 3 per cent penetration of the vMVPD market to 5 percent – and it expects fubo’s growth to continue helped by general cord-cutting and appealing to sports fans. “By 2025, we project fubo will have more than a 10 per cent share of the vMVPD market,” says the bank.
One controversial aspect of fubo’s overall offering is its wagering element. The bank says that wagering is a risky bet, but one worth making. “The viability of fubo’s wagering strategy is hotly contested among bears. We believe it is a hand-in-glove strategic fit for fubo, and the company should be given the benefit of investors’ doubts, particularly in light of its demonstrated progress toward a Q4 real money launch. We continue to estimate the value of fubo’s wagering strategy at $12/share, which assumes only 30-40 per cent of subs gamble, moderate sub accretion, and a 66 per cent chance of success – hardly heroic assumptions, in our view.”
Meanwhile, ProSiebenSat.1’s financial numbers, released last week, in general impressed the market. But there was also an element of caution over the upcoming year in terms of advertising income.
In a separate report, analysts at Berenberg praised the revenue picture, saying that ProSiebenSat.1’s 4th quarter advertising take was up 3 percent and helped deliver revenues of €4.04 billion. “These numbers were higher than consensus anticipated. However, our operating and cash flow estimates change only modestly, with the stronger 2020 advertising numbers suggesting a less steep recovery in 2021. Our price target rises to €15.10, reflecting some re-rating on online assets since our last update.”
Berenberg maintains its ‘Hold’ advice to investors.
But the bank warns that it expects advertising income to weaken as the year goes on. “Following the strong Q4/2020, Q1 has slipped back to a decline of c-11 per cent. This should not be a surprise; Q4 was the outlier that reflected a) consumer ability to spend running up to Christmas (and limited lockdowns), b) a reluctance by advertisers to pay penalties for not spending budget commitments and c) still elevated TV viewing. We expect Q2/2021 to show strong growth, off very weak comparables, but a return to negative trends by Q4, given the tough comparable, reduced consumption and reallocation of budgets to out-of-home, cinema and mobile media that targets people away from the sofa.”
“While management notes strong audiences for certain local and live programming, in 2020, the group’s total video viewtime increased by only 0.7 per cent whereas national TV consumption grew by 4.5 per cent and online video consumption by even more. In Q4, the group’s total viewtime actually declined slightly versus Q4 2019. This suggests that ProSiebenSat.1 is losing share of the total video market. We believe that this will be reflected in its share of video advertising spend,” says the bank.