May 23: Catena considers breakup

Catena Media strategic review, Sportradar analyst reaction, Startup Focus - Fliff, the shares week +More

Earnings+More

May 23, 2022

Good morning. On today’s agenda:

Catena Media admits to enquiries about a breakup.
Jefferies suggest there is “higher value to capture” at Sportradar.
Our startup focus is F2P operator Fliff.

Breaking up. Click here.

Catena Media strategic review

If you don’t ask: Two days after revealing Q1 earnings, Catena Media said it is undergoing a “strategic review” of the business after “noticing” interest from third parties with regard to acquiring various assets including its flagship AskGamblers brand, its AskTraders financial assets and “certain other” of its global brands.

“In light of this,” the company said, it has initiated a strategic review “which will be broad, consider all feasible alternatives and assets of the group to ensure an optimal outcome”.
The company went on to say this “may include investigating” the sale of certain assets. The review may also consider “another type of structural transaction”.
Recall, Catena Media’s other brands include the Play brand (which contains LegalSportsReport.com) as well as recently-acquired Lineups.com and i15 Media Group.

Too much to ask: In its Q1 statement last week Catena said AskGamblers had set a monthly revenue record in March but saw a “moderate decline in revenue for the period”.

“This remains a robust, high-margin business where we expect ongoing product development investments will deliver positive revenue benefits towards year-end.”
“A long-term program to improve AskGamblers’ search engine rankings by enhancing website responsiveness, content and structure progressed as planned.”
Q1 recap: Revenues were up 11% to €45.2m; adj. EBITDA up 2% to €25.6m but organic growth was down 9% on continued issues in Germany and the Netherlands. North America revenues were up 32% to €29.5m.

Asking for a friend: On the financial assets, Catena’s statement added: “While the hesitation among first-time investors in the prevailing climate hit AskTraders, the German market – which accounts for about half of the segment’s revenue – held relatively firm.

“Forward progress was seen in Nigeria, South Africa and Malaysia,” the company said while adding it had also launched successfully in Singapore during the period.

AskGamblers background: Catena bought the Serbia-based European-focused AskGamblers in Apr16 for €15m. It said at the time the UK was its biggest market, though subsequent commentary (Q121) suggests it has also moved into the Japanese market.

At the time of its Q421 earnings Catena said AskGamblers revenue “increased marginally” as it encountered “tougher market regulations in certain key territories”.
In response, Catena said it was developing the brand further by “broadening its game portfolio, expanding into sports betting, and advancing its fledgling presence in esports”. It said it expected the initial revenue impacts of these measures to crystallize in FY23.
In Q3, Catena said AskGamblers revenues showed a “moderate” YoY decrease which “primarily reflected the impact of fluctuating Bitcoin values on exchange rates when converting operator income earned in Bitcoin into euros.”

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Playmaker buys Props Network

Making a play: Sticking with gaming affiliates, Playmaker Media has bought TPN Media, owner of the Props Network, for an undisclosed sum. Co-founded by Kyle Piasecki, the Props Network was only formed at the start of 2020.

Taking to social media, Piasecki said “exponential growth is now the measuring stick”.

Wells Fargo recession estimates

Estimating the downturn: The team at Wells Fargo suggest investors in US gaming stocks are pricing in a 5%-10% revenue decline in 2023 and the same percentage fall in EBITDA.

The team point out that by comparison, in the early 2000s, peak-to-trough regional operator revenue/EBITDA declined ~15/30% while Las Vegas Strip operator revenue/EBITDA declined 9% and 16%, respectively.
During the GFC, peak-to-trough regional revenue/EBITDA similarly declined by 15/30% while LV Strip operator rev/ EBITDA declined 26/55%, and LV Local operator rev/EBITDA declined 40/60%.

Not buoyed: Boyd Gaming is the target for most pessimism, with the current valuation implying 12$ YoY declines in 2023. Net up is Red Rock Resorts where the implication is a 9% decline followed by Caesars with an implied 5% decline.

The shares week

In the wake of the news on the strategic rethink, gaming affiliate giant Catena Media enjoyed a good end to the week, soaring 13.5% on Friday. However, this only made up some of the ground lost over the week. Its five-day performance was down 8.7%. Playtech was also up over 6% on Friday helped by the news that the board’s independent committee has set a deadline for the TTB bid. However, it remains down 26% in the YTD.

Sportradar analyst update

Discount rate: Jefferies were positive on Sportradar shares but dropped its price target from $23 to $18, to reflect the rising rate environment and “sentiment on digital wagering prospects”, which they believe will take a couple more years to reach profitability.

In-play rise: With Sportradar’s US revenues up 124% YoY as new states launch, the team said newly-acquired AI tech provider Vaix will help enhance the group’s managed trading services division and cross-sell into online casino and its share of revenue from US in-play to rise from the current 20-30% levels.

The analysts said Sportradar’s history, positioning and profits were “positive investment merits” and they expect the group to capture the value in the market, “(but) management’s long-term strategic objectives are less clearly defined”.

Earnings in brief

PAF saw revenue rise 19.5% to a record €135 million last year, off the back of the acquisition of Swedish iGaming brands Speedy and Speedy Originals which contributed €6.3m since acquisition in August. Revenue from online gaming rose 20.4% to €121.2m. Land-based revenue increased 12.2% to €13.8m.
Bet-at-home Q1 GGR was in line with expectations at €14m while EBITDA losses came in at €1.4m. The group submitted its license application in the Netherlands in March and said it was hopeful the German authorities would “take rigorous action against unlicensed providers in the foreseeable future”.

Startup focus - Fliff

Who, what, where and when: Fliff is a free-to-play and low-staking real-money betting operator founded in 2019 by Matt Ricci, Mario Dodev and Ivan Velev. Initial product launch was in 2020. Operations are based in Philadelphia, with development in Sofia, Bulgaria. The social sportsbook gamifies the sports-betting experience with leaderboards, badges, and challenges while the sweepstakes provide a free-to-play opportunity to accumulate virtual currency that can be redeemed for gift cards and cash prizes.

Funding backgrounder: Fliff has raised a seed round, but the amount and investors are undisclosed.

So what's new? Ricci says Fliff has seen consistent month-over-month growth, especially in recent months. “We are soon launching a desktop and mobile web-app, and expanding our social features ahead of next football season to increase gamification, social rewards, and competition among users.”

The longer pitch: Ricci says the company sees its opportunity in introducing sports fans to betting with a free-to-play and gamified user experience. “We are drawing on some of the mechanics and metagame elements of other successful mobile games, and applying them in a sports-betting context,” he adds.

The response from users has been positive: Fliff is currently a top 50 sports app, with over 4,000 reviews and an average 4.8 star rating.
Ricci says Fliff is “hyper-focused right now on continued growth in the US” which is where he thinks the biggest opportunity exists given how immature the market is.
“We are also looking at the success of companies in other industries that have added social layers to transactional products and experiences.”

The week ahead

Bringing up the rear: The Q1 earnings season is coming close with just a few stragglers left to fill out this week. First up on Wednesday is Super Group, the company behind the Betway and Spin online brands.

At the time of its FY21 results in late April, the company said revenues rose 45% to €1.32bn while adj. EBITDA was 60% to €289.5m.

Team of rivals: Also reporting this week is esports and traditional sports-betting operator Rivalry. At the time of its Q4 earnings in late April, it said Q1 handle had reached a new record $40.2m, up 273% YoY and up 62% sequentially.

DraftKings investor meeting: Jefferies says it will be meeting with DraftKings management this week. “Most important, in our view, will be discussion around the capital set-up and the balance of capturing market share, entering new markets and progressing toward profitability.”

Newsletter schedule: Wednesday earnings extra, Thursday morning pod, Friday Weekend Edition.

Terraforming: Also this Friday’s sector watch will take a look at the ramifications of the latest ‘crypto winter’ including a look at the disaster that was Terra and Luna.
Further reading: participants adjust to the crypto stumble. “Industry veterans have seen the market faceplant before.”

Chart of the week: Bitcoin’s crypto-dominance.

Datalines

New York - week ending May 15: Betting handle dropped 13.7% to $286.2m, the state’s lowest total since launching on Jan8.

Gross gaming revenues were down 16% to $30.9m, margins were 10.8%. New York state collected $15.8m in taxes.

Leaders: FanDuel continued to lead with $120.1m in handle and $17.6m in revenue, DraftKings is second with $71.6m in handle and $6.3m in GGR, Caesars Sportsbook is third with $45.3m in handle and $3m in revenue, BetMGM is fourth with $30m and $2.2m in GGR.

Newslines

Crown Resorts shareholders approved Blackstone’s $8.87bn acquisition and it now goes for regulatory approval on Tuesday.

After the fall: Mohegan Gaming’s PlayFallsview mobile sports-betting and casino brand received regulatory approval in Ontario. PlayFallsview operates on Kambi’s sportsbook platform and will launch after it agrees to an operating contract with iGaming Ontario.