Digital Rebrand And NUTZ Token Will Attract High-Value Gambling Users

Key Takeaways

• Crypto integration and a digital-first rebrand are expected to boost user engagement, revenue, and customer loyalty.
  
• Significant expense reduction and VIP program development set the stage for near-term profitability and stable cash flow.
  
• Extensive cost-cutting and downsizing may save costs short-term but can hinder long-term growth, impacting talent, user engagement, and revenue amid cryptocurrency reliance and market volatility.

Catalysts

Through its subsidiaries, operates as a sport betting and media property that offers regulated online wagering on esports, sports, and casino for bettors.

• Rivalry's comprehensive product overhaul and digital-first rebrand are expected to attract high-value, crypto-native players, potentially increasing overall revenue through higher user engagement and average net revenue per user.
  
• The introduction of the NUTZ crypto token aligns Rivalry's business deeply with the crypto gambling market, creating a new revenue stream and enhancing player retention, which can lead to increased earnings and customer loyalty.
  
• The significant reduction in operating expenses by approximately 50% positions Rivalry for near-term profitability, allowing savings to potentially enhance net margins.
  
• The development and strengthening of Rivalry's VIP customer base, coupled with the launch of an expansive VIP program, aim to drive increased net revenue per player and stabilize cash flows.
  
• Continued support from the non-brokered private placement and the resulting stronger balance sheet are anticipated to underpin growth strategies and support profitability, which could positively impact earnings and investor confidence.

Rivalry Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Rivalry's revenue will grow by 47.7% annually over the next 3 years.
• Analysts are not forecasting that Rivalry will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Rivalry's profit margin will increase from -165.6% to the average CA Hospitality industry of 20.0% in 3 years.
• If Rivalry's profit margin were to converge on the industry average, you could expect earnings to reach CA$9.7 million (and earnings per share of CA$0.11) by about May 2028, up from CA$-25.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.3x on those 2028 earnings, up from -0.2x today. This future PE is lower than the current PE for the CA Hospitality industry at 15.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.02%, as per the Simply Wall St company report.

Rivalry Future Earnings Per Share Growth

Risks

• The company has reduced its headcount by approximately 50% and implemented significant cost-cutting measures, which while improving short-term margins, could affect operational capacity and long-term growth if key talent and capabilities are lost. This could lead to negative impacts on revenue generation and net margins.
  
• A 9% decrease in betting handle from Q2 to Q3 of 2024 indicates potential challenges in maintaining user engagement and market share, which could negatively influence revenue growth.
  
• The reliance on cryptocurrency as a payment method and the introduction of the Rivalry Token (NUTZ) introduce significant risks due to the volatility of the crypto market, which could impact earnings and financial stability.
  
• Deferred revenue of $3 million for NUTZ suggests that actual revenue realization is contingent on future token launch and market acceptance, which poses a risk to near-term financial performance and liquidity.
  
• Significant marketing expenditure reductions, while decreasing costs, have led to lower player acquisitions, potentially impacting revenue growth from new users and diminishing competitive positioning in the online gambling market.

Valuation

• The analysts have a consensus price target of CA$0.5 for Rivalry based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$48.7 million, earnings will come to CA$9.7 million, and it would be trading on a PE ratio of 6.3x, assuming you use a discount rate of 11.0%.
• Given the current share price of CA$0.06, the analyst price target of CA$0.5 is 87.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.