12 Nov: Weekend Edition no.22
Deutsche Bank hold on Penn National, GAN, Inspired Gaming, Golden Nugget Online Gaming Q3, SBC Europe Day 2 +More
Welcome. As the third-quarter earnings season begins to tail off, one of the key takeaways is that there is blood in the water. The marketing firepower expended around the start of the NFL season has had its effect. Observers and participants can quibble about what success looks like or even which metric should be used to measure it against. But whichever metric is used, the big guns will continue to pound away because attritional warfare suits those with the most resources. However we lead with Deutsche Bank’s detailed takedown of Penn National Gaming and its Barstool Sportsbook frontman Dave Portnoy.
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Penn National Gaming analyst update
Don’t hold back: Compliments don’t come much more backhanded than in the Deutsche Bank note issued today, which upgrades Penn National to a hold from a sell on the basis of its “massive underperformance” against its regional gaming peers. “Since our downgrade, and after numerous character assassinations, we stuck with our sell rating, because it was based on fundamentals, and ultimately we felt we were right and over time, the fundamentals would prevail.”
Taking advantage: The team pointed out that after Penn became something of a meme stock, the company did “exactly the right thing” and issued ~68m shares, increasing the share count since the pandemic began by around 60%. “However, to steal a recent quote from New York Mets President, Sandy Alderson, the stock promotion proved short lived, as the ‘blowhard in a house of cards’ was unable to keep it together long enough.”
The zinger: And so to Dave Portnoy. The DB team said the Penn share price was driven by an “overhyped sports-betting story”, before adding:
"At present, we believe Penn, the company we covered since 2011, and recommended as a buy from 2011 through January of 2020, is just a sideshow, a sideshow to a wildly volatile, incredibly libelous, and misleading social media front man.”
Calibrate this: In maintaining the price target of $31, the DB team add that they “obviously believe there is risk to the downside” while the upside risk is “hard to calibrate” given the backdrop of “fundamentally baseless stock moves”.
“Net-net, we think this era has been an unfortunate black eye for the gaming industry, and one that we believe most could have seen coming,” the Deutsche Bank team added.
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GAN Q3
The top line
Revenue was down 7% QoQ to $32.3m, gross profit was $21.5m vs. $24.3m QoQ. Adj.EBITDA $39K vs. $4.6m QoQ.
B2B revenue was $11.2m vs. $10.6m QoQ and $3.6M in gross profit. B2C was down $2.9m to $21.1, gross profit was $7.2m.
Net loss was $7.9m vs. -$2.7m, including $1.5m additional tax expense, foreign currency effects and Coolbet acquisition.
Ole miss: With a newly-announced deal in Mississippi with the Island View Casino Resort, GAN says it will be up-and-running in 14 states versus three this time last year. Jefferies noted the EBITDA miss ($39k of EBITDA vs. street expectations of $2.1m) was due to lower than expected margins.
Dodging a bullet: On the call CEO Dermot Smurfit suggested the company had “specifically got out of the way” of a licensing bid in New York.
“We saw an environment where consortias will be formed, where the underlying technology providers were being asked to stump up as much as 50% of the upfront license fee, and we just couldn't make those numbers pencil,” Smurfit said.
Upfront funk: That said, he didn’t rule out getting involved later down the line. “We do have continuing opportunity with multiple consortium members that have been announced and also tribal gaming operators in the state of New York,” he added. “So yes, New York is still very much a viable state for GAN, just not upfront.”
Tainted love: When asked about further M&A, Smurfit aimed a side-swipe at a recent deal.
“There was a live dealer asset that came to the market a few months ago that I believe that's just traded, but we couldn't get comfortable with the compliance profile and the fact that 50% of its historical revenues had come from Turkey, which has obviously financed the development of that technology asset, so we deemed it to be rather tainted,” Smurfit suggested.
Inspired Q3s
The top line
Revenue increased 29% YoY to $77.6m (+52.7% excl. $9.3m UK VAT rebate).
Adj.EBITDA increased 20.4% to $30.1m (+88.8% excl. VAT payment)
Adj.EBITDA margin 38.8% vs. 41.6% Q320 (+ 31.4% excl. the VAT payment).
Cash and equivalents $37.1m, total debt $324.3m
On fire: Inspired management said the group was “firing on all cylinders” now that the integration of Novomatic UK (acquired in Jun20) was coming through. UK retail was up 94%, virtual sports +27% and interactive was up 73%. The group will launch its ilottery product with Loto-Quebec on H122 with flow-through to show by YE22. President Brooks Pierce said the North American ilottery market was “certainly the target”. Truist said growth in mature markets (UK, Greece, Italy) combined with developments in “North American businesses could grow company EBITDA by 2-7x at maturity”.
Virtual insanity: Chairman Lorne Weil said the opportunity to use the group’s iga ming content and “let's say, reskin it to be used in iLottery, we think the opportunity to do that is obviously enormous.”
“But we actually think there is a great opportunity in lottery to use the virtual sports content. It may be the dominant way our virtual sports technology monetizes in the US. I personally think it is going to come much more than we might have thought before from the ilottery business.”
Golden Nugget Online Gaming Q3s
The top line
Revenues were up 37.4% to $35.6m YoY, net loss was $31.3m vs. $1.8m YoY, including a loss on warrant derivative liabilities of $18.9m, stock-based compensation expense of $3.4m and $2.8m of merger related expenses.
Active FTDs grew 133.2%, adj. EBITDA loss was $2.5m vs. adj. EBITDA of $8.2m YoY, “primarily attributable to growth investments in new markets, predominantly in Michigan,” GNOG said.
Note: GNOG did not host a conference call.
Men at work: GNOG said the 1,800 square foot expansion of its New Jersey live dealer studio to increase capacity from 18 to 33 tables should be completed by year-end. Further highlights included the launch of an online sportsbook in Virginia and a new live dealer agreement with Entain extended for three more years with a commitment to operate additional private tables once the studio expansion has been completed.
Great Lakes at play: Thomas Winter, GNOG president, said Michigan saw GGR growth of 26.3% QoQ, “while the rest of the market grew 4.7%” thanks to a “steady focus on customer acquisition and retention”. GNOG’s “financially disciplined approach to new markets” led to Michigan NGR growth of 33.6% and players from the state accounting “for 70% of our new active depositors”. The return of VIPs will increase the player mix with GNOG confident “that Michigan will eventually be at par with New Jersey in our revenue mix".
Earnings in brief
Paysafe: FY guidance and Adj.EBITDA revised downwards to $1.47-$1.48bn from $1.53-$1.55bn and $425-$435m from $480-495m due to “gambling regulations and softness in key European markets and performance challenges impacting the digital wallet segment”. Q3 payment volumes increased 19% to $31.1bn, revenue was down 1% to $353.6m, net loss was $147.2m vs. $38.1m and included a non-cash impairment charge of $322.2m. Adj.EBITDA was down 1% to $106.4m. The group didn’t break out revenue by verticals but said it recorded 50% YTD revenue growth in North American igaming further to partnerships with Fubo, PlayUp and SuperBook and continued the pilot rollout of its new Skrill USA digital wallet with 11 operators.
Start-up shoutout
The great and the good: Las Vegas-based start up Playtertainment has completed a $5m funding round to fuel the development of a live gaming platform. The latest round follows on from an initial $3m seed in 2019 and was led by SDV Holdings, with additional investment from ex-PartyGaming and WSOP CEO Mitch Garber, Gamesys founder Noel Hayden, DraftKings co-founders Matt Kalish, Jason Robbins and Paul Liberman; Elad Cohen, co-founder of Playtech; Astralis Capital and Sharp Alpha Advisors.
Tooth and claw: The company has been active since 2019 and has launched the mobile app Winner Winner, which allows players to operate real claw machines and arcade games via video streaming. Co-founder Jon Davidman said: "What we are building will change the way we think about physical games and competition. Through technology, we're able to create a highly interactive, connected gaming experience that allows players to compete with real, physical games and get rewarded when they win those contests."
SBC Betting on Sports - Day 2 recap
Sixth sense: Speaking of Sharp Alpha Advisors, managing partner Lloyd Danzig was eerily prescient during a panel discussing how operators could move on from huge bonuses and freebets to attract players. He said more gamification and social features could be used by operators, but pointed out that in the US betting volumes were still driven by social media, with a name check for you-know-who: “Dave Portnoy gets in a Twitter spat about a player and you’ll see significant volumes on Barstool.” When it comes to player values, John Gordon, CEO of Incentive Games, said operators should also not worry about “decreasing margins and instead seek to “entertain customers longer, not bleed them dry as quickly as you can.”
Datalines
Illinois: September sports betting handle including land-based retail rose 49% MoM to $597m, hold was unchanged at 6.7%. GGR including land-based retail was $40m, a 40% rise MoM. DraftKings, FanDuel and BetRivers were the top 3 brands for handle, recording ~83% on mobile, which accounted for 94% of total GGR vs. 95% in August.
Missouri: October GGR was up 14.5% vs. Oct19 and up 6.5% MoM to $162m. Visitation was down ~12%, spend per visitor was up ~30% vs. Oct19. The St. Louis market, including both Missouri and Illinois casinos, was up 5% to $88.4m in GGR. The Kansas City market was up 15.6% to $61.4m vs. Oct2019 and up 8.6% MoM.
Newslines
COP that: Spotlight Sports Group has published a “Betting Tech Ecosystem 2021” report to make sense of the multi-layered structures underpinning the online betting and gaming industry. The research showcases six key verticals (platform providers, trading, data etc.) and the major businesses that feature in each, summarising who the suppliers are across the industry and the extensive M&A that has taken place recently.
Ocean drive: The Ocean Casino in Atlantic City Resort has signed up with Elys Game Technology subsidiary USBookmaking for OSB and icasino. Elys will provide trading management services and upcoming retail solutions to the property pending regulatory approval from New Jersey’s gaming regulators.
Beau gosse: BetMGM has launched its mobile app at MGM Resorts International’s Beau Rivage in Biloxi, Mississippi, to go with its OSB offering at the Gold Strike resort in Tunica.
Calendar
17 Nov: Catena Media, Better Collective Q3s
18 Nov: Gambling.com Q3s
Contact us
Scott Longley scott@clearconcisemedia.com
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GAN - What was the live dealer asset?