On May 6, Fubo Group (SEHK: 3738) released Q1 operating data. During the performance period, the company achieved a 26% year-on-year increase in total revenue; business revenue in mainland China (in RMB) increased by about 31% year-on-year, far exceeding the industry average revenue growth rate, continuing to verify the company's outstanding growth. Strong growth in the domestic market further highlights the superiority of the company's business model, replicability of business and expansion potential, which means that the company can calmly develop other potential markets at the right time and provide “unlimited” support for performance growth.
From a revenue quality perspective, Fubo's monthly continuous revenue (MRR) for the first quarter increased 33% year over year. As a key measure of the company's long-term financial health and customer loyalty, MRR's continued positive high growth further confirms the effectiveness of Fubo Group in maintaining and expanding its revenue base and maintaining stable relationships with customers. With a forward-looking strategic vision and continuous consolidation of comprehensive strength, Fubo has demonstrated strong risk resistance and cycle crossing capabilities.
As Hong Kong stocks continue to heat up, the capital market no longer conceals its expectations and optimism for Fubo Group. In the past two weeks, Fubo Group's cumulative increase was close to 30%, leading the entire industry sector, and the rebound was strong. The release of excellent first-quarter data is also expected to further catalyze the company's stock price performance.
(Source: Futu Market)
1. Core business areas have jointly achieved rapid growth, and AI lays out a new growth curve
Through the disclosed core business indicators, there is no doubt that Fubo's consistent growth continuity and stability are unquestionably evident. According to announced data and statistics, Fubo's revenue for the first quarter grew 26% year on year. The author estimates that it was about HK$550 million, reflecting the company's continued proven high growth capacity. As the first performance report of the new year, this “good start” report card undoubtedly conveys the company's good growth expectations to the outside world.
According to the RMB audit scale, the revenue growth rate in the Chinese region was about 31%. Considering that the two main business regions of China and North America had a relatively balanced share of revenue over the long term. Combined with historical data and the data released this time, it can be estimated that the revenue growth in the North American region remained above 25%, close to 30% year-on-year. Both the Chinese and US businesses have shown steady and continuous growth, further confirming the company's two core markets going hand in hand. In fact, according to YouTube's latest Q1 growth rate of 21%, it can be seen that the growth rate of Fubo's business far exceeds the growth rate of the YouTube platform, and Fubo's US business (estimated at about HK$270 million) accounted for less than 1% of YouTube's revenue in the first quarter, indicating that Fubo's US business still has huge room for improvement.
Looking at the domestic market, Fubo has made continuous breakthroughs in copyright protection and transaction-related businesses.
Following the signing of a copyright protection and trading platform cooperation project with a company under China Central Radio and Television in December of last year, and the company's copyright service capabilities were recognized by national media platforms, Fubo's pace in digital content protection and trading became more and more solid. The company continues to develop the content value potential of the platform. In addition to large-scale coverage and management of the platform's content, the two sides are also exploring copyright management and content marketing opportunities in the corresponding AIGC field. Strong alliances have the opportunity to turn the cooperation project into an example of a benchmark convergence platform, raising Fubo's brand influence and customer appeal to a new level.
In addition to the rapid growth of the existing business, the company's firm investment and layout in the AI field has paved a new growth curve for Fubo. In the author's view, Fubo's potential for AI growth not only stems from its technical strength, but also from its far-reaching layout in terms of talent and resource networks.
As early as 2022, Fubo had already established a new R&D and operation center in Florida, USA, and deepened cooperation with the University of Florida. At the time, Fubo should have been looking at the University of Florida's deep heritage in the field of artificial intelligence and abundant reserve human resources. As the 6th largest public university in the US and an innovative artificial intelligence university in the US, the University of Florida and Nvidia have close cooperation. In 2021, the two sides will launch a cooperative project with a total investment of 100 million US dollars. To this end, the University of Florida also hired 100 additional artificial intelligence experts and professors, and integrated artificial intelligence into teaching and research in all faculties.
In addition to technology and talent reserves, cooperation and interaction between Fubo and global AI leaders is also deepening. On the one hand, large content parties that have established deep mutual trust with Fubo are still the most important stakeholders in the AI era. They pay close attention to content production, protection and trading in the AI era. As their close partner, Fubo inevitably detected the AI development trends and service needs of the industry earlier, and laid out copyright services in the AI field in advance to promote the implementation of systemic solutions in the AI era.
On the other hand, Fubo Group's AI “circle of friends” seems far more powerful than what the outside world has seen. Previously, founder Wang Yangbin was successfully inducted into the first University of Florida Electrical and Computer Engineering Hall of Fame. Behind the award, not only did the Fubo Group have a close relationship with the University of Florida, but Nvidia co-founder Chris Malachowsky, who also won the award, and Don Estridge, known as the father of IBM PC, are more thought-provoking. Under a strong “alumni network”, Fubo may have already achieved links with the world's top AI resources. This will undoubtedly provide Fubo with a more favorable position in the global AI competition.” The “” move is also even more exciting.
2. For those with clear targets for high growth and high returns, the valuation is still relatively low
Fubo Group's continued high growth far surpassed that of its peers. The results have continued to be realized, and Fubo's excellent operating ability has been demonstrated. The company achieved a 26% revenue growth rate in the first quarter, increasing the certainty of achieving growth targets for the whole year. In fact, compared to analysts' predictions for the 2024 year-on-year revenue growth rate of industry companies based on the 2023 results, a growth rate of more than 25% is almost rare in the industry.
(Source: FACTSET)
Fubo complies with the “40 rule”, verifying its target characteristics of high growth returns. The “40 rule” refers to a software company that is considered a software company with good growth and high return if the sum of its annual revenue growth rate and profit margin (generally referred to as EBITDA profit margin) exceeds 40%. Fund managers often use this standard to select stocks in the software industry. Fubo's revenue growth rate in 23 was 39%, and the EBITDA profit margin was 16%. The sum far exceeded 40, indicating that its target had good growth and return. Previously, McKinsey tested and analyzed more than 200 software companies of various sizes from 2011 to 2021, and found that only 16% of companies had this indicator above the “40 rule”.
In addition, statistics selected the top 50 SaaS companies in the US stock market capitalization and found that the average PS valuation difference between SaaS companies that met the “40 rule” in US stocks and companies that did not meet this rule was more than double, and that they had 15% excess income compared to the S&P 500. It can be seen that listed companies that continue to comply with the “40 rule” are more likely to receive higher valuations and the favor of investors in the capital market.
Even with the fundamentals of high growth and high returns, the company is still in a low valuation window. In a market where the trend of Hong Kong stocks has been relatively weak in the past two years, Fubo far surpassed the industry's performance growth rate, yet the corresponding valuation is at an historically low level. The current PS value is only 1.85 times, 2.33 times lower than the industry average, yet its revenue has tripled in the past three years (revenue increased from 690 million in 2021 to 2 billion in 2023), and EBITDA has also tripled (EBITDA increased from 110 million in 2021 to 320 million in 2023). However, the undervaluation window is always short. In the recent rebound in Hong Kong stocks, targets with stable fundamentals and undervalued values were always quickly selected by the market, and the performance of a 30% increase in stock prices over two weeks also proved this.
3. Conclusion
Overall, this first-quarter data continues to show the strong growth momentum of Fubo Group as a leader in digital content protection and monetization. As its volume crosses the 2 billion mark, Fubo's leading position and comprehensive advantages have become more remarkable. The company's leapfrog growth potential around the AI layout has further verified its solid fundamentals.
As the Hong Kong stock market continues to strengthen, the Hang Seng Index recorded its longest continuous rise since February 2018. Institutions believe that, driven by the return of foreign capital and the increase in domestic capital inflows, Hong Kong stocks already have high allocation value. Companies such as Fubo, which have good fundamental support and undervaluation advantages, will be more recognized by the market, and they will have more confidence and expectations for their performance in the Hong Kong stock market.