Online Casinos That Use Evolution Gaming

Online Casinos That Use Evolution Gaming – Evolution Gaming (OTCPK:EVVTY) [Evo] operates online casinos for gaming operators around the world. Live casino and Random Number Generator [RNG] casinos are two main areas of Evo, which has grown significantly as an industry since 2016. The live casino and RNG markets have grown at annual rates of 28.2% and 8.9%, respectively, in the last five years. believes potential future growth will benefit Evo’s profits. Additionally, by focusing on expanding its gaming portfolio through organic and acquisition-based development, Evo could see new game users become interested in its suite of products, leading to more sales. As regulation continues to support the growth of online gaming in the Americas, I believe international expansion (outside of Europe) will be a key catalyst for success.

Evolution Gaming was founded in 2006 and is headquartered in Stockholm, Sweden. Evo develops, manufactures, markets and licenses fully integrated online casino solutions for gaming operators around the world. With a strong focus on operational excellence, Evo grew its customer base to 500 gaming operators by the end of 2020, after signing agreements with dozens of US operators last year (e.g. BetMGM (MGM), Caesars Entertainment (CZR), Wynn). Interactive Sports (WYNN)). I think Evo has a very simplified revenue model due to its B2B structure. By receiving commission fees from live casinos and RNG, Evo receives monthly commission checks from gaming operators based on a percentage of gross winnings through the casinos.

Online Casinos That Use Evolution Gaming

I believe Evo’s focus on operational excellence has been fundamental to its past success. In 2020, system availability was 99.87% excluding scheduled maintenance, which represented the lowest cost for operators using its platform. Evo also strives to be the most reliable and transparent online casino provider, paying close attention to compliance. All Evo Gamers and Mixers undergo over 100 hours of training as part of the Evolution Academy program. Through this program, employees develop skills in areas such as gambling addiction, law enforcement and money laundering.

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Since 2016, the online casino market has grown dramatically, with live and RNG casinos growing at a CAGR of 28.2% and 8.9%, respectively. In 2020, the global online casino market grew 23% at the end of the year, reaching US$19.8 billion, according to H2GC. Although the online casino market will only represent 20% of the total global casino market by the end of 2020, I believe this segment will continue to grow relative to land-based casinos.

The reason I believe the online gaming industry will continue to grow is demand in new geographies and newly regulated markets. Evo was recently able to expand into Pennsylvania and Michigan as new regulations allowed. Evo’s North American revenue grew from $1.3 million in 2017 to $44.9 million at the end of 2020 (226% CAGR) as it expanded into the United States.

Since the total casino market in North America is estimated at $58 billion in terms of revenue, the potential new regulated states will, in my opinion, ensure a shift from land-based casinos to online casinos. At the end of 2020, it was estimated that online casinos would only represent 5.5% of the total casino industry in North America. Due to Evo’s minimally segmented makeup and lack of widespread licensing in the US, this industry is poised for long-term expansion, in my opinion. Even if the market expands to 10% of 2020 industry revenues over the next few years, that would equate to $5.8 billion, or 8.5 times Evo’s 2020 revenues. With this potential shift, I believe the Evo has exceptional long-term growth potential in America and other international markets.

I think one of the ways Evo can continue to gain market share in a potentially expanding industry is to develop its product.

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While many of the new games added to the product portfolio are developed organically by Evo, acquisitions also contribute to product and revenue growth. In December 2020, Evo acquired NetEnt, adding slots as a new vertical to its live casino platform. Since NetEnt has a very similar business model to Evo, I think they can synergistically sell different games to their different customer bases. Evo stated that it intends to develop a suite of NetEnt games to offer the best player experience. To this end, Evo explained that they are working on several joint projects and that they will launch several co-developed games in 2021.

By adding new games and acquiring new verticals in different gaming segments, I believe Evo can grow quickly as demand from diverse consumers and gaming users potentially grows.

I believe that because of Evo’s position in the online casino industry, they have been able to generate incredible revenue growth, margin expansion, and profitability metrics over time.

From 2015 to 2020, Evo’s revenue grew at an annual rate of 49%, the operating margin almost doubled from 27.61% to 53.41% and the net profit margin was 50%. Because Evo’s business model is largely based on operating expenses with no actual cost of goods sold, they operate at 100% gross profit. Depending on market expansion and product development, I believe Evo’s revenue will reach 4,619.26 billion euros in 2025, with a net profit margin close to 60%.

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I think profitability metrics and free cash flow growth have also been great for Evo in the past.

Free cash flow growth has been very good and the gross revenue percentage is now astronomical in my opinion. I also believe that return on invested capital [ROIC] and return on equity [ROE] have been historically high and stable. In 2020, the new share offering was purchased by initial investors at well above par value, which increased additional paid-in capital and led to a sharp increase in total capital. Because of this, profitability numbers appear to have fallen sharply, but I believe they will normalize over time as the company attempts to invest the new infusion of capital.

Using bearish, fundamental, and bullish P/E and EV/S multiples for Evo, I created 2025 price targets based on 2025 EPS and revenue projections.

EPS-based PTs of $16.28 [€13.57 * 1.2x exchange rate] are calculated by multiplying EPS by P/E multiples of 30x, 25x and 20x. Earnings-based PT is calculated by multiplying $5.543 billion in revenue [€4.619 billion * 1.2x exchange rate] by EV/S multiples of 12.5x, 10.0x and 7.5x, and subtracting -$147, 25 million in net debt and dividing it by my debt. estimated in 2025 shares distributed in circulation 202.93 million. The Earnings % and CAGR columns use the current stock price of $140.25. CAGR uses n=4.5 years.

Game Provider, Evolution Gaming

I believe the valuation multiples I used in my price targets will be supported by continued earnings growth and the ability to further expand margins.

Although Evo’s share price has risen dramatically over the past two years, I believe this move is justified. Although the stock is down about 25% from its April highs this year, currently at the 253-day moving average, I believe this could provide a good technical area to boost the position.

Online casinos are still a relatively new industry, with many jurisdictions not allowing them to operate. The new regulation can open up markets and offer excellent revenue potential for the company, but it depends on this fact to continue its geographic expansion. I believe that a disruption or even a slowdown in the newly regulated environment could dampen growth expectations and lead to several restrictions on what is currently a growing business.

As a young industry, the potential for new entrants can be high as companies can focus on the space. Especially as new jurisdictions become available for the industry to operate, money-making opportunities may be presented to start-ups or existing players. I think this poses a particular risk because regulation can act as a double-edged sword: newly regulated jurisdictions can assimilate new entrants, and a disruption or relaxation in regulation can stifle growth potential.

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I think Evo is a very interesting company, with a strong moat around its business. Since they are the largest online casino provider, with over 500 different gaming operators as customers, I believe they are well protected from new entrants trying to enter the industry. Due to its position in the online casino industry and the potential for future growth due to increased demand and increased regulation internationally, I believe Evo presents a unique investment opportunity. I believe that with exceptional profitability numbers, high (and growing) margins and future growth potential, Evo can provide great value to shareholders over time.

My investment focus tends to be on relatively affordable growth stocks. Although my focus is on large-cap stocks, I do not limit myself to specific sectors or industries in my investment strategy. Using a fundamental, valuation-based approach, I look for investments that have the potential to outperform the S&P 500 in the short and long term. periodically. My strategy also uses a short-term tactical approach to reposition my portfolio and reduce downside risk.

Expert Disclosure: I/We do not own shares or options

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