According to a report created by Grand View Research, Inc., the global online gambling market size is forecast to reach USD 127.3 billion by 2027. It comes as no surprise that the Swedish company Evolution Gaming Group AB (EVO: SS) is generating impressive profit margins with its unique, scalable business model.
The B2B operator is powering many of the live casinos around the world. Its skyrocketing earnings attract the interests of would-be investors looking to get a piece of the action.
- Evolution Gaming’s revenue grew 53% to $669 million in 2020.
- In 2020, Evolution bought NetEnt and Red Tiger for $2.1 billion.
- Evolution won Live Casino Supplier of the Year at the EGR B2B Awards in 2020.
What Is Evolution Gaming?
Evolution Gaming opened in 2006, with the Swedish group developing, producing, marketing, and licensing fully-integrated B2B live casino solutions to over 300 gaming operators.
Its primary focus is the live casino market, with the group specializing in setting up and operating live-streamed betting rooms. Evolution employs close to 7,400 people in studios located across Europe and North America.
The group operates studios in the specific US states as legislation requires that live casino operators need a physical site to offer their services within the state’s borders in a legal capacity.
Financial Business Model
The majority of the group’s income originates from the 10% take rate it receives from licenses awarded to online casinos that run its software. Its business model makes financial provisions for the group to receive $10 from every $100 the online casino makes with the licensed software.
Plus, if the online casino leads to a loss while running the software, Evolution is not held liable for any customer payouts. Evolution licenses its live casino software and tables to major sites such as 888 Casino, Betfair, Paddy Power, Draft Kings, William Hill, Mr. Green, and more real money online casinos.
Things to Know Before Investing in Evolution Gaming
Evolution Gaming experienced tremendous growth through mergers and acquisitions that saw it acquiring NetEnt and Red Tiger. Not only has revenue grown by 53% to $671 million in 2020, but the group’s margin expansion demonstrates the expansive scalability of its business model.
The group anticipates revenue growth due to demand globally and the newly-regulated market launched in Colombia, with expansive market penetration expected for South America and Africa soon.
A Closer Look at the Numbers
- Evolution’s current market cap is $24.6 billion, while it trades at a price-to-sales (P/S) ratio of 36.8 and an EBITDA multiple of 66.7.
- Its 2020 EBITDA rose by 82% to $397.3 million from 2019’s $218.72 million, a margin of 59.2%.
- The group’s 2020 financial report also indicates that its profit for the fourth quarter was $96.4 million.
- The financial year’s profit was $340.34 million compared to 2019’s annual profit of $179 million.
Should You Buy Evolution Gaming Stock?
Investing in gambling stock has the potential to bear high yields due to the industry’s exponential growth, expansion into previously-restricted territories, and the correlation between new technology and casino offerings.
Potential investors should evaluate the following points and consider whether Evolution’s future growth can counteract its premium valuation. If the company succeeds in doing this, it may very well be a long-term stock.
High Stock ValueEvolution price-to-sales (P/S) ratio of 36.8 and an EBITDA multiple of 66.7 effectively result in a premium valuation with high stock prices.
Company OverviewThe group’s five-year forecast looks positive, with expansion planned in the USA, resulting in high-profit margins.
Possible RisksThe significant risk is that its market share, along with its take rate, will reduce if competitors can match its offering’s breadth and scale. Although the group has locked in its licenses for three years – effectively staving off such a scenario.
The Future of Evolution Gaming Stock
As US states legalize online gambling and the market penetration increases, it’s more than likely that Evolution should see dramatic profit margins in the future.
The demand for live dealer casinos is rising due to greater player involvement, more players opting to play at online casinos, and the global pandemic. Evolution stock may very well hold the key to the industry’s future.
Disclaimer: OnlineUnitesStatesCasinos are not financial experts. Past stock performance does not guarantee future results. Any action taken with this information is strictly at the reader’s own risk.