Deep Dive: Evolution Gaming
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What do they do? Evolution Gaming is the back-end powering many online casino apps and websites. They license live studios and internet poker games to companies like MGM or Penn National so they can easily build an online casino presence. They are based in Europe but are expanding to operating globally, with a big push to enter the United States.
History? Jens Von Bahr founded the company in 2006. They went public on the Swedish NASDAQ in 2015, and are now listed in the United States as well.
Industry? The global online gaming market is $54 billion and expected to grow at a 10% CAGR. Competitors include Playtech.
Management? In 2016, Martin Carlesund took over as CEO. Insiders own about 10% of the stock.
Valuation? (from time of recording) EV/sales of 40, EV/OI of 75.
Earnings? FY 2020 sales of $682.3 million, up 53% from 2019. 53% operating margins are very high.
Balance Sheet? About $271 million in cash, with only major liabilities being $61 million in leases.
Potential Competitive Advantages? Proprietary games, high switching costs, and existing infrastructure/invested capital.
Potential Future Growth Opportunities? Second-hand content, leaning into sports betting, were the two big ones we saw (outside of the obvious entrance in the United States).
Highlights? High margins, management, and industry tailwinds were all positives for us.
Lowlights? Unsure how copyable the model is, possible huge boost from the pandemic, and tough regulatory environment and political left-tail risk.
Disclosure: The authors and podcast guests are not financial advisors. Brett Schafer and Ryan Henderson are portfolio managers at Arch Capital. Clients of Arch Capital may hold securities discussed on this podcast.