ROIC Dive: Investing in Sports Betting “Shovels”?

(Wpadington)
(Wpadington)
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On September 9th, a ROIC member called into the live stream to ask about Genius Sports Ltd (GENI). At the time, GENI was trading at $22.11 per share an [Interesting 🧐] rating. As of this morning, it is trading at $19.32 per share, and we’ll take a closer look at the business.

Overview

  • Genius Sports Ltd (GENI) is a sports data and technology company that provides data management, video streaming, and integrity services to sports leagues, bookmakers, and media companies.
    • The company enables its consumer-facing partners the ability to engage with their customers.
    • The scope of GENI’s software bridges the entire sports data journey, from intuitive applications that enable accurate real-time data capture, to the creation and provision of in-game betting odds and digital content that helps create engaging experiences for the ultimate end-user.
  • GENI completed a merger with a special purpose acquisition company, dMY Technology Group, Inc II in April 2021.
  • Genius Sports announced multi-year strategic partnerships with DraftKings, Caesars, WynnBET, and 888 SI Sportsbook to provide a rull range of official sportsbook data and content and fan engagement solutions – including NFL-related products.
  • Genius Sports’ mission is to be the official data, technology, and commercial partner that powers the global ecosystem connecting sports, betting, and media.
  • On June 9, the company announced pricing of an upsized public offering of ordinary shares which closed on June 14.

Q2 Earnings Highlights

  • Revenue more than doubled YoY to $55.8 million.
  • Adjusted EBITDA rose 126% to $5.2 million.
  • Enhanced tech capabilities with acquisitions of Spirable, Second Spectrum, and FanHub.
  • Raised $435 million of primary and secondary proceeds in an upsized public offering.
  • Reaffirmed 2021 guidance
    • Revenue: $255 million – $260 million
    • Adjusted EBITDA: $10 million – $20 million
  • Q2 Presentation

Management Commentary

Mark Locke, Co-Founder & CEO

  • “We continue to significantly expand our leading portfolio of official rights by partnering with sports leagues and federations in key regions across the globe.”
  • “Our recently announced NFL-related agreements with sportsbook operators have validated our strategy and instilled confidence in our ability to deliver results at the high end of our previous guidance for the year”

Financials + Valuation

  • On June 30, GENI had 186.5 million A shares outstanding and 18.5 million B shares outstanding.
  • At $19.32 per share, the company is currently valued $3.96 billion in market cap.
  • At the high end of FY21 guidance, GENI is trading at 14x sales and 184x EBITDA for the current FY.
  • The company is currently growing over 100%, but we must consider two things:
    • Some of the growth was due to acquisition (Spirable, Second Spectrum, FanHub, Sportzcast).
    • The period ending June 30 in 2020 was a dead period for many sports and sports advertising, so the company was coming off of a strong comps period.
  • Going forward, analysts expect growth in the mid-20s. On analyst 2022 expectations, GENI is trading at 11x sales and 86x EBITDA.
  • Genius Sports (GENI) is an opportunity to invest in the “shovels” of the sports betting gold rush. It has promising partnerships including an important one with the National Football League (NFL) in the U.S. In fact, the NFL has ~5% stake in the company.
  • GENI is the best looking sports betting play we’ve looked at, but it’s not particularly cheap either. Our take is that it looks fully valued with upside potential on continued legalization and popularity of sports betting. But if one wants exposure to the mega trend, then this one might be the one to hold.
  • GENI also poses the risk of trading with other SPAC stocks which we have seen impact other popular SPAC names.
From Genius Sports Q2 Presentation
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