by Travis Johnson, Stock Gumshoe | August 27, 2021 4:00 pm
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Hi Travis,
What do you think about Beth Kindig’s assertation that Fubo is a better play than Draftkings in regards to sports betting?
Sports Betting
In the United Kingdom, sports betting is a $20 billion industry today. There are projections that sports betting will be a $155 billion industry by 2024. To find an opportunity with exposure to this market at a $3 billion market cap is worth a closer look.
Fubo acquired Balto Sports on December 1st in the company’s first strategic move to launch free-to-play games this year. Balto Sports develops tools and contest automation software for users to organize and play fantasy sports games and is a Y-Combinator graduate.
There was criticism from the short sellers that FuboTV had bought a headline. Yet, there is nothing unusual about a stealth product that needs to attach the technology to an audience. In fact, Fubo plans to beta test its free gaming experience in the next few weeks and this rapid release is likely due to the incubation period that Balto Sports underwent beginning with its time at Y Combinator.
In Q1, Fubo acquired Vigtory, a sports betting and interactive gaming company, for $37.2 million. The company was founded in 2019. The company is co-founded by a former gaming executive at MGM Resorts and has regulatory approval in New Jersey. Notably, the app has not gone live which is reflected in the price.
Fubo Sportsbook is expected to launch in Q4. The company has $400 million cash and is planning to spend less than $50 million to launch sports betting, per the Q1 earnings report. Fubo plans to deliver streaming and gaming in one data analytics platform, offering users a seamless experience. We expect the company will see lower customer acquisition costs as a result of owning the audience. Fubo’s CEO, David Gandler, said during the most recent earnings call that 30% of users are willing to participate in free-to-play, according to surveys done on the platform, while 22% of paid subscribers are willing to place bets on Fubo.
Despite short sellers not seeing how or why a sports betting app could merge with live sports content, we now see DraftKings partnering with Sling/DISH. I guess content and sports betting does go together, after all (yes, I’m being sarcastic!) It’s surprising that the critics said it cannot be done despite Sky Media having the most successful sports betting model globally.
From purely a user acquisition standpoint, in-app ads with your own content is nearly frictionless and you have a mountain of data to effectively target. Fubo’s ability to gather audience data and appropriately market them, with a deep understanding of preferences, is an advantage that is currently understated. Fubo has first-party data and can specifically tailor an experience, which will either result in higher ARPU from betting or higher ARPU from ad spend.
DraftKings, meanwhile, has partnered with the number six over-the-top provider, DISH Network/Sling. We think DraftKings sees the potential threat in Fubo having access to first-party data and a closed-circuit loop for user acquisition in sports betting. Notably, DraftKings faces friction here when introducing a new brand name that is not DISH/Sling. Essentially, whatever DraftKings can do with the #6 partnership, Fubo can do better. For example, Fubo can give free sports content away to high value users who spend over $100 on sports betting and offer other rewards that are not possible unless you own the audience. The CEO talks about this here.
DraftKings spends an exorbitant amount on sales and marketing at 82% of revenue. This reflects the cost of acquiring users when you don’t own an audience. It’s interesting, of course, that the critics of Fubo do not look at the $1.5 billion in net losses that DraftKings accrues on its bottom line. On a forward basis, DraftKings is estimated to report ($2.82) EPS for fiscal year 2021 compared to Fubo’s estimated ($1.96) EPS.
Notably, despite having 1/3 the revenue and audience size of DraftKings, Fubo is trading at 1/6 the market cap. It’s not hard to see the potential here, and clearly a healthier bottom line isn’t the reason that DraftKings trades at a 300% higher valuation.
https://www.forbes.com/sites/bethkindig/2021/05/21/fubotv-why-i-like-this-stock-better-than-draftkings/?sh=e946d336243d
I think it’s a pretty spurious comparison at this point, the biggest brand versus a company that’s not yet launched a gambling product, but that’s the most relatively appealing hope for FUBO.
I don’t see enough yet to bet on that hope, but it’s not
Impossible. I don’t think DKNG is worth the current price, either, but they do have a valuable brand — part of the problem is that there’s a lot of cash flowing through sports betting, but not a lot of profit in it yet for the bookies. That can change with more in-game betting, maybe FUBO will turn out to be good at that, we’ll see.
Thank you for your take on the issue.
Hi Travis, Have you had a recent look at DKNG? any change in opinion given the recent price decline?
Travis,
Any updated thoughts on Coupang, now trading below its IPO price?
Don
CODI: It was nice to see you mention Compass Diversified Holdings (CODI). I first purchased CODI back in 2009 after Barron’s ran a small article calling it a mini Bershire Hathaway. Compounding the dividends over the years has given me a ridiculous Yield on Cost (YOC) in excess of 40% and it has grown into one of our larger investments. CODI was structured as a PTP (publicly traded partnership) that issued K-1’s each year.
This summer, shareholders overwhelming voted to convert to a C-Corp structure starting in September. When BX did this in 2019, BX moved from the upper $20’s to over $100 a share ($124 currently). Initial price action after the recent CODI announcement indicates that it is also responding positively to the restructuring (moving from the mid 20’s to the upper 20’s over a couple weeks).
Perhaps you could analyze CODI at some point and opine on whether it could reasonably emulate the price action seen in BX over the last two years. Obviously CODI is a much smaller player in this space than BX, but that is not necessarily a bad thing.
P.S. Really enjoy your in-depth musings each week.
I have friends in camper sale business and the rv park business and both are booming,
Another aspect to the RV world is that buyers aren’t just those getting them for toys/status symbols, but for those at the other end of the income classes that want to live in them and travel cross-country, something that is not only more possible now in the COVID era with online work being more acceptable to employers, but also for people who are restless/antsy over COVID era restrictions in the area which they’re from.
I also think people are making RV and boat purchases (probably in the middle-upper middle income area) as replacements for trips abroad due to COVID restrictions (in both the destination country and the vax+mask reqs. for flights).
Definitely a lot of that over the last year… so you think it continues, or, in the worst case, that the RV market gets flooded with used campers when things get back to “normal?”
I don’t know how it shakes out, but I don’t expect I’ll be bored.
RVs are like wedding rings, people seem to hold onto the forever. My favorite road trip game is spot the rotting RV.
Same thing for boats. When you roll into a Malibu dealership and see them selling for damn near 200k a piece, you suddenly notice a little more shine on that 30 yr old Sea Ray than before.
I bought some MKTW last week and just got around to checking my share lending report. The short interest rate is currently 59.4%! Not sure this is a company the Reddit crowd would ever want to rally around, but what a great short squeeze it would make.
That’s largely because the float is so small, which will change, but yes, it’s likely to be super volatile, often making big moves for no obvious reason.
I misread, I think you meant the cost to borrow — yes, it’s very high. Interactive Brokers currently indicates that there are 156,000 shares available to short, and the cost to borrow is 132%. That’s an annual number, and most people don’t hold shorts for that long, but it’s still extremely high — popular shorts AMC and GME are currently listed with a fee of less than 1%, probably because shorting is not as popular in those names when you’re terrified that the Reddit crowd might try to squeeze you.
rookie, Yahoo Finance shows 2.35% of the float is short. Where did the 59.4% figure originate?
Regards,
Frank
Sorry for the lack of clarity, I meant the rate being charged to those who borrow shares to short.
I think Twilio is a wonderful company (albeit expensive). I bought them in the tech sell-off earlier this year in the $290s after having had them on a watchlist for a while but having failed to buy at an even cheaper entry point of around $200 when I first got wind of them. But who knows what’s to come as far as price action. The market is a wild animal.
But TWLO’s list of customers is beyond impressive. Building out services with their tools takes legitimate software engineers (or at least was beyond my abilities when I tried using them for some small-time stuff) but they service both the end-user and middlemen. Two quick examples would be MercadoLibre and Zendesk. MELI uses them as the end-user to implement VOIP to talk to their customers as a land-line alternative (a major trend in business along with SMS). Then you’ve got ZEN who is effectively a middleman, packaging TWLO’s VOIP service with a bunch of other CS functionality in a plug and play way. And VOIP is just one of the many services they provide. At the risk of a little hyperbole, I compare Twilio to the early days of AT&T at the turn of the 20th century (okay, so maybe a lot of hyperbole, but I do own TWLO with no stop losses attached).
As for that new stock exchange, maybe that’s for me lol — I recently trimmed a little of NET. I try really hard to let the winners run but every now and then, for sanity’s sake, I hit the sell switch (plus I’m fairly heavily exposed to the cyber security space anyway with positions in OKTA and FTNT, both which have performed very strongly as well).
Just a couple thoughts from someone who knows nothing about the industry.
Since RV’s are huge, they can have huge batteries. I think that would be a plus for electrification. I imagine RV owners would rather charge overnight when traveling than stop for gas at truck stops to fuel up.
On the downside, I heard from a local body shop owner that parts are hard to get now and it is affecting business, so I would think that would hurt Camping World revenue and earnings.
You make a compelling argument for investing in Camping World via dividend increase and outlook. They are becoming a monopoly that could lead to a good long-term investment.
But, I have owned and used RV’s for 23 years and I can honestly say that I’ve learned to loathe having to use Camping World based on my experiences. I will now go out of my way to avoid them. And, I am not alone. They have very poor customer ratings for many reasons. Also, I’m a longtime Good Sam member but, I dropped my roadside assistance portion due to a horrible customer service experience when stranded with a broken leafspring. In the end, I ended up having to arrange my own tow and find a repair shop on the road as I was getting nowhere with the Good Sam rep trying to “help” who had no idea, was not a local and was located in a different state.
Their store prices for RV goods and parts are often higher than elsewhere even with your Good Sam discount. RV prices are higher. You just always get the sense you’re getting gouged to … I don’t know … pay for stock dividends and excessive management pay?
But, investing in CWH and compounding the dividends just may be the way to alleviate my loathing!
Maybe so… though buying companies you love, as a customer, is probably better in the long term than buying companies you loathe!
Hmmm …. good point. Often, companies that I like and also use as a customer are companies that I end up buying holding for the long-term (as long as they have good financials). It’s a lot easier to ignore any downturns and hold on to them, too, if you have a strong conviction. Meanwhile, the compounding continues…
Indeed. The things that make it easier for me to hold a stock during bad times are either a conviction that the product or service is superior or a high level of trust in management. I have that for most of my larger positions, but it often takes time to build.
I did like the cut & paste list of RV sales that Travis added. Noting im a student of the real estate cycle, the 2001 and 2008-09 drop ins ales correspondes with the last 18.6 REC in the US. 2001 was the mid-cycle correction, and 2009 the peak of the credit cycle just beofre the crash.
Land in the US peaked in 2006.
So, i think it might be a ida to add a real estate lense when looking at CWH.
Adding more franchises is actually a land play. And with US land values rising, and not expected to peak by at least 2026 currently, those frtanchisors will be paying veer increasing rent to CWh as their landlord.
Then add charging station to their service centres, all of these gains eventually manifets into the land price.
Plus, the REC gives you ample warning of when its time to exit such a stock too…
My 2 cents…
I’m with you CWH is a terrible place to do business with. Have a local one and it has stolen the power cords from two of my friends campers when they go in for warranty service which they always deny its under warranty! I’m sure its an employee but they just deny everything
Test test … is this comment section working?
As a 23 year owner of RV’s, I have learned to loathe using Camping World. Poor customer reviews online says that I am not alone. But, maybe investing in CWH and compounding dividends would help alleviate my loathing! The are steadily becoming a monopoly.
Following your earlier announcement I picked up CWH as it’s current and projected dividend looks great. Both CWH and FUBO are current recommendations at the Oxford club.
I agree with the RV growth thesis, but I went in a different direction and a few months ago I bought shares of LCI Industries (LCII), which manufactures new and replacement parts for RVs. It looks like it’s becoming a dividend growth stock (dividend increases each of the last five or six years), has exhibited tremendous growth recently, and appears undervalued to me. Those new RV owners are going to have to take care of their investments….
An interesting one, likely to be a bit more stable and that is a solid five-year dividend growth pattern they’ve set (last couple increases were 15% and 20%).