In re FuboTV Inc. Sec. Litig.

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In re FuboTV Inc. Securities Litigation.

No. 21-cv-01412 (ALC)

United States District Court, S.D. New York

March 30, 2023

OPINION AND ORDER

ANDREW L. CARTER, United States District Judge.

This lawsuit is a putative class action involving alleged federal securities fraud. Lead Plaintiff Nordine Aamchoune individually and on behalf of a class of all persons or entities who purchased or otherwise acquired common shares of FuboTV stock, brings this action against Defendants FuboTv (“Fubo” or “the Company”), along with David Gandler (“Gandler”), Edgar M. Bronfman Jr. (“Bronfman”), and Simone Nardi (“Nardi”) (collectively “Individual Defendants” and together with Fubo “Defendants”) alleging violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder (Count I) and Section 20(a) of the Exchange Act (Count II). Defendants moved to dismiss Plaintiff's Amended Complaint in its entirety under Federal Rule of Civil Procedure 12(b)(6). For the following reasons, Defendants' Motion is GRANTED.

BACKGROUND

I. Procedural Background

In February 2021, two lawsuits were filed against Defendants Fubo, Gandler, Bronfman, and Nardi alleging violations of the Exchange Act.^[1] The Court consolidated the two actions and appointed Nordine Aamchoune as the lead plaintiff (“Plaintiff”) on April 29, 2021. ECF No. 26.

On July 12, 2022, Plaintiff filed the Amended Complaint (“AC”). ECF No. 32. The AC alleges that all Defendants violated Sections 10(b) and Rule 10b-5 and that the Individual Defendants violated Section 20(a) of the Exchange Act. Defendants filed their motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) and supporting memorandum and papers on September 10, 2021 (“Defs.' Mot.”). ECF Nos. 33-35. Plaintiff filed his opposition on November 9, 2021 (“Pl.'s Opp.”). ECF Nos. 36. Defendants' reply was filed on December 9, 2021 (Defs.' Reply). ECF No. 38. Plaintiff additionally filed a letter motion seeking leave to file supplemental authority on December 17, 2021, ECF No 39, which Defendants opposed through a letter response. ECF No. 40. The Court granted Plaintiff leave to submit the supplemental authority and considered the parties' letters and the law cited therein. ECF No. 41. The motion is deemed fully briefed. After careful consideration, Defendants' motion to dismiss is GRANTED.

II. Factual Background

The following facts are taken from the allegations contained in Plaintiff's Amended Complaint, which are presumed to be true for purposes of this motion to dismiss. The Court also considers facts drawn from news releases, financial reports, and transcripts of earnings calls which Plaintiff quotes from extensively in the AC and are thus incorporated into the AC by reference. See ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007).

A. The Parties

Lead Plaintiff Nordine Aamchoune is a resident of Dubai, United Arab Emirates who acquired shares of Fubo and seeks to represent a class consisting of all those who purchased or otherwise acquired shares of Fubo throughout the period of March 23, 2020 and January 4, 2021, both dates inclusive (the alleged “Class Period”). AC ¶¶ 1, 16.

Defendant Fubo is a Florida corporation with a principal place of business in New York, NY. Id. ¶ 17. Defendant David Gandler is the co-founder of Fubo and has served as Fubo's Chief Executive Officer (“CEO”) and as a Director of Fubo's Board of Directors since April 1, 2020. Id. ¶ 18. Defendant Edgar M. Bronfman, Jr. has served as Fubo's Executive Chairman since April 29, 2020. Id. ¶ 19. Defendant Simone Nardi has served as Fubo's Chief Financial Officer (“CFO”) since May 31, 2020. Id. ¶ 20.

B. History and Structure of Fubo

Fubo was founded in 2015 and is a multichannel video programming distributor (“mMVPD”) that offers subscribers access to thousands of live sporting events as well as news and entertainment content. AC ¶ 29. Fubo's streaming services is available in the United States, Canada, and Spain, and consists of different subscription level plans offering different channel packages. Id. Unlike traditional cable television or satellite providers, Fubo does not supply its own data transport infrastructure and instead, relies on subscribers to maintain their own internet connection to access to its services. Id. ¶ 30.

In March 2020, Fubo announced its merger with FaceBank, a virtual entertainment company focused on development, protection, and activation of the personal digital likeness assets of celebrities and consumers for use in artificial intelligence, entertainment, personal productivity, and social networking. Id. ¶ 33. After the merger, Fubo became a wholly owned subsidiary of FaceBank and FaceBank was renamed to FuboTV Inc. Id. Through this merger, which was completed on April 1, 2020, Fubo obtained a secured revolving line of credit of $100 million. Id.

In October 2020, Fubo publicly offered 18.3 million common shares for $10 per share, excluding the underwriters' option to purchase an additional 2.75 million common shares. Id. ¶59.

Fubo closed its public offering of 19,706,708 shares of common stock on October 13, 2020, generating $197 million in gross offering proceeds. Id.

In November 2020, Fubo announced its intention to expand into the online sports wagering market. Id. ¶ 66. On December 1, 2020, Fubo acquired Balto Sports, a company that develops tools for users to organize and play fantasy sports games. Id. ¶ 75. Following the news of this acquisition, several securities analysts raised price targets and began incorporating Balto Sport's valuation into Fubo's own valuation. Id. ¶ 82.

On December 23, 2020, Richard Greenfield of Lightshed Partners initiated coverage with a report of Fubo titled Initiating FUBO with Sell Ratting and $8 Target Price, with a sell recommendation for the Company and a $8 one-year price target. Id. ¶ 84. On the same day, Fubo was downgraded by BMO Capital Markets to “market perform” down from “outperform,” noting that Fubo's “valuation had gotten overheated.” Id. ¶ 85. The shares of Fubo then declined $17.82, or 28.74% over two days, from $62.00 on December 22, 2020 to close at $44.18 on December 24, 2020. Id. ¶ 86.

On December 27, 2020, Lightshed Partners filed another report in which it called Fubo, “a money-losing virtual MVPD” and reiterated its sell recommendation. Id. ¶ 87. The price of Fubo's shares then declined $5.24, or 11.86%, from $44.18 on December 24, 2020, to close at $38.94, on December 28, 2020. Id. ¶ 88.

On December 30, 2020, Kerrisdale Capital published a report (“Kerrisdale Report”) that stated Fubo's core subscription business was “structurally unprofitable” due to “high variable content costs with contracted escalators.” Id. ¶ 90. The Kerrisdale Report explained that Fubo “does not have any data or inventory that is differentiated and cannot provide the reach many advertisers crave.” Id. ¶ 95. Furthermore, the Kerrisdale Report also concluded that Fubo's acquisition of Balto Sports was a “foolish” attempt to enter the “already highly competitive space [of sport wagering]” and that Fubo's strategy of “dropping content to manage costs is reactionary and destined to cause eventual spikes in churn and subscriber acquisition cost.” Id. ¶¶ 100-101. After the publication of the Kerrisdale Report, Fubo's shares declined another $9.70, or 25.72%, to close at $28.00 on December 31, 2020. Id. ¶ 102.

On January 4, 2021, just after the close of Q4 2020 but before the results for the quarter were released, the financial industry site Motley Fool published an article titled There's a Big Problem with FuboTV Stock with a subtitle “The wildly unprofitable streamer tries to put lipstick on a pig with a creative metric.” Id. ¶ 103. The Motley Fool article questioned the Company's business model, stating that the Company is “nowhere close to turning a profit” as the “direct costs of delivering its service are higher than revenue.” Id. Fubo's shares declined an additional $3.99, or 14%, to close at $24.24 on January 4, 2021. Id. ¶ 106.

Fubo's revenues are almost entirely derived from the sale of subscription services and advertising in the United States. Id. ¶ 36. The primary source of Fubo's revenue is selling subscriptions to the users of its platforms. Id. In Fubo's quarterly results for Q3 2020 announced on November 16, 2020, Fubo reported $61.2 million in total revenue, of which $53.3 million was derived from subscriptions and related add-ons. Id. ¶ 36. Fubo also earns revenue through advertising; in Q3 2020, Fubo reported advertising revenue of $7.5 million.

C. Defendants' Statements During the Class Period

The AC includes 44 paragraphs under the heading “Materially False and Misleading Statements Issued During the Class Period.” AC ¶¶ 39-83. The Plaintiff alleges that the “statements identified in ¶¶ 29 through 82” of the AC were “materially false and misleading statements and failed to disclose material adverse facts about the Company's business, operational, and compliance policies.” Id. ¶ 83. The “statements” are as follows.

On the first day of the Class Period, March 23, 2020, Fubo issued a press release, attached to Fubo's 8-K filing with the Securities and Exchange Commission (“SEC”) the same day, entitled “Facebook Group And FuboTV Announce Definitive Merger Agreement - Combined Company To Be Named FuboTV, Inc.,” wherein Defendant Gandler stated that “[t]he business combination of FaceBank Group and fuboTV accelerates our ability to build a category defining company and supports our goal to provide consumers with a technology-driven cable TV replacement service for the whole family.” Id. ¶ 39. He added that “fuboTV is well-positioned to achieve its goal of becoming a world-leading...