Player Pipelines [Pitch]
An industry-leading "picks and shovels" business adjacent to the online gambling industry, trading 50% below fair value.
Overview
Summary: Our second post on “Hidden Gems” delves into Gambling.com (GAMB), a small cap leader in player acquisition services for online casinos and sportsbooks, trading at bargain prices.
What is Gambling.com?
Owns and operates 50+ sports and gambling information sites, including Gambling.com, Rotowire.com, Casinos.com, Bookies.com, and Bonusfinder.com, spanning 15 national markets.
Attracts website visitors and converts them to “New Depositing Customers" (NDCs) for online casinos and sportsbooks.
Provides player acquisition services to more than 250 of the industry’s top companies, including DraftKings, FanDuel, BetMGM, ESPNBet, and Caesars Sportsbook.
How do they make money?
When GAMB delivers NDCs to online casinos and sportsbooks, they are paid through one of the below commercial arrangements:
Cost per Acquisition (CPA) - a single cash payment per NDC, which varies by market and product
Revenue share - net gaming revenue from referred players is shared with GAMB, usually paid out for the lifetime of the player.
Hybrid - a combination of CPA and revenue share
Advertising, Onboarding, or Subscription Fees - revenue from portfolio site operations, not from referred players.
Why is Gambling.com interesting today?
GAMB is an overlooked “picks and shovels” business in the online gambling space with two separate secular tailwinds:
1) Shift from illegal to legal forms of gambling (U.S. gambling legalization, European gambling regulation)
2) Shift to online gambling from physical casinos and sportsbooks
Google’s search algorithm changes (March-May 2024 core update) led to a FY ‘24 guidance reduction that weighed heavily on the stock (addressed below), leading price to dislocate from fundamentals.
GAMB centrally operates its portfolio of sites using its own proprietary software for managing content, ad placement, and business intelligence. This model enables “plug and play” of new acquisitions, which are a key component of its growth strategy.
GAMB has a proven track record of acquiring and expanding under-monetized sites, including Rotowire.com (grew revenue by >50% in 2 years).
Will Google’s algorithm changes be a major headwind for the business?
Short answer: Unlikely, this has all the makings of a short-term headwind. Near-term growth will be impacted (long-term unclear), but the lower guidance from management seems to limit downside risk and leaves a window for possible upside surprises on near-term results and/or guidance.
Here’s what we know from the last earnings call:
GAMB reduced FY ‘24 revenue and adj. EBITDA guidance by 8% and 9%, respectively, on Google-driven weakness in its media partnerships segment (appears to be a teens % of revenue).
Visibility into the true impact was extremely limited with only 11 days from the algorithm change to the earnings call, suggesting management was likely conservative with their estimates.
Management noted an immediate positive impact on owned and operated sites (which drive the core revenue component), but did not quantify the expected tailwind to the core business. Long-term impact is expected to be “very positive” for owned sites.
Management remained comfortable with consensus EBITDA estimates for 2025, but sell-side analysts reduced their estimates by ~5% after earnings.
What I suspect could happen near-term:
FY ‘24 guidance may be raised slightly with further clarity on the balance of headwinds and tailwinds for the business, as management likely took a conservative approach when setting expectations initially.
GAMB may work out some of the issues stemming from the Google changes, which could lead to a better than anticipated outcome for the media partnerships segment in FY ‘24.
Key Financial Stats
1Q24 Earnings
Revenue of 29.2M, up 9% Y/Y
Adjusted EBITDA of 10.2M, down 5% Y/Y
EPS $0.19, up 12% Y/Y
Free Cash Flow of 8.2M, up 32% Y/Y
New Depositing Customers (NDCs) of 107K, up 22% Y/Y
FY ‘24 Guidance
Revenue of $118M-$122M, up 10% Y/Y at the midpoint
Adj. EBITDA of $44M-$48M, up 14% Y/Y at the midpoint
FY ‘24 revenue and adj. EBITDA guidance reduced 8-9% from Q4 earnings
Valuation - Quick and Dirty:
Historical Multiples
Current NTM EV/EBITDA multiple: 6x (57% below historical median of 9.5x)
Current EV/Sales multiple: 2.2x (52% below historical median of 3.3x)
Quick DCF
Quick DCF implies ~50% upside with conservative estimates:
10 year EPS (w/o NRI) growth rate of 10%
10 year terminal rate of 3%
10.5% discount rate
Implied fair value of ~$12 per share
Consensus price target of $13 per share (low $10, high $18) implies 63% upside
Implied Upside
Historical median multiples: +55%
Quick DCF: +50%
Financial Visualizations
Stock Price
Total Revenue
Gross Profit Margin (%)
EBITDA Margin (%)
Net Profit Margin (%)
Return on Invested Capital (ROIC)
Return on Capital Employed (ROCE)
NTM EV/EBITDA
NTM EV/FCF
NTM EV/Sales
Sources used in this post include FinChat.io and company filings.
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