Genius Sports operates within a duopoly in the real-time sports data and technology market. It benefits from the secular growth in online sports betting both in the US and globally.
The business has shown strong revenue growth, with EBITDA growing even faster due to the fixed cost nature of its business model. Genius Sports is expected to be free cash flow positive this year and trades at an appealing valuation considering its promising growth prospects.
Furthermore, multiple catalysts have been identified that could lead to further upside.
Company Overview
Genius Sports is a B2B sports data aggregator that provides live sports data to sports betting and media companies. The company holds exclusive rights for sports data through partnerships with major leagues such as the NFL, NCAA, WNBA, and the English Premier League.
Genius Sports operates in a duopoly with Sportradar (SRAD) for global sports data. Genius has a stronger presence in Europe and Asia, while Sportradar is more dominant in the US due to its partnerships with the NBA and MLB.
Beyond collecting, managing, and distributing real-time sports data, Genius Sports has introduced offerings like BetVision, which provides an interactive live-streaming experience with in-game betting in the NFL. The company’s Dragon technology enables augmented highlights for fans watching live or post-game videos on social media.
Financial Performance and Outlook
Genius Sports operates on a fixed cost model, with most of the fixed costs related to payments made to sports leagues for acquiring data rights. The company has leveraged its business model by augmenting growth through additional revenue streams, leading to rapidly growing EBITDA margins.
For FY24, the company expects Adjusted EBITDA of $82 million, 53% higher than the prior year.
The company’s current margins are in the low 20s, with management targeting long-term margins of 30%. Increasing the share of in-game bets through offerings like BetVision is key to raising Adjusted EBITDA margins.
In-game bets have a higher take rate (5%) compared to pre-game bets (1.5%), contributing significantly to margin accretion without additional costs.
Financial Position
Genius Sports has a healthy balance sheet with $73 million in cash and no debt. The company recently entered into a $90 million revolving credit agreement, providing additional financial flexibility.
Catalysts for Growth
Higher Margins from In-Game Betting: Growing revenue through features like in-game bets will significantly increase the company’s bottom line. In-game bets have a long runway in the US compared to mature markets like the UK.
Florida Market: Florida has granted an exclusive license to the Seminole tribe, which re-commenced operations in December last year through its Hard Rock brand. Genius benefits from Hard Rock’s dominant position, as rival sports betting companies cannot enter the market. Florida’s sports betting wagering is estimated to be close to $10 billion annually.
Newly Regulated Markets: The sports betting market continues to grow with new regulations in markets like North Carolina. Missouri and Oklahoma could potentially introduce regulations later this year. Brazil also presents a significant opportunity, with regulations introduced last year and revenue contribution expected in the second half of this year.
Valuation
For 2024, the company is expected to achieve $500 million in revenue and $82 million in Adjusted EBITDA. Given its consistent history of beating guidance, it is likely Genius Sports will exceed these figures.
With a net cash position of $73 million and 230 million shares outstanding, the company trades at an EV to Sales ratio of 2.2 and an EV to Adjusted EBITDA ratio of 13.7.
This valuation is attractive considering analyst expectations for high teen growth rates over the next three years. Sportradar, Genius Sports’ rival, trades at similar multiples despite slower growth expectations.
Risks
Overpaying for Data Rights: The company may overpay for data rights, as it did in the past with the NFL deal. While this aligns NFL’s interests with Genius Sports as a major shareholder, it poses a financial risk.
Competition: Sportradar, being double the size of Genius Sports, presents significant competition for sports rights. However, Genius Sports has managed to secure and extend crucial deals until 2029.
Regulatory Changes: The betting industry is susceptible to regulatory changes in the US and globally. Potential headwinds include the banning of betting in college sports.
Compelling Risk-Reward Profile
Genius Sports presents an attractive investment opportunity with up to 100% upside by 2026 if management continues to execute its growth strategy. Despite some risks, multiple levers can propel the company’s growth and margins higher, rewarding shareholders handsomely.
Genius Sports offers a compelling risk-reward profile for initiating a long position.
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