Rising Gaming Taxes And Regulation Will Curtail Prospects

Key Takeaways

• Rising regulatory pressures, higher gaming taxes, and ESG compliance are compressing margins and limiting long-term profitability and expansion potential.
  
• Operational risks from dependence on third parties and intense industry competition threaten revenue growth, cost efficiency, and market share retention.
  
• Strong geographic diversification, growing B2B revenue streams, and strategic tech investments are driving sustainable earnings growth, operational efficiency, and robust financial stability.

Catalysts

Through its subsidiaries, invests in and manages online gaming business in the Nordic countries, Latin America, Western Europe, Central and Eastern Europe, Central Asia, and internationally.

• The increasing proportion of revenues derived from locally regulated markets is driving up gaming tax expenses, leading to ongoing gross margin and EBIT margin compression; as more countries implement or raise taxation and regulatory requirements, Betsson will face structurally lower profitability in the coming years, directly weighing on long-term earnings growth.
  
• Intensifying regulatory scrutiny in key regions and the slow pace of license approvals, such as the stalled acquisition in the Netherlands and new markets like Brazil and Paraguay contributing little initial revenue, threaten to undermine future top-line growth and create risk of abrupt license revocations or unfavorable changes to operating conditions, further increasing volatility in group revenues.
  
• Heightened ESG concerns and the tightening of responsible gaming frameworks, compounded by Betsson's need to align with CSRD and ongoing societal pressures, could lead to a higher cost of capital, additional compliance costs, and limited access to certain markets, exerting pressure on net margins and restricting future expansion opportunities.
  
• As Betsson continues aggressive geographic and product expansion, the company's growing dependence on third-party suppliers and rapid integration of recent acquisitions could result in higher operational costs, inability to achieve expected synergies, technology disruptions, or even goodwill impairment, likely weighing down net income and earnings per share.
  
• Across the broader online betting industry, fierce competition from both established global players and tech-driven entrants is escalating marketing spend and driving down customer acquisition effectiveness; if Betsson is unable to innovate rapidly or defend its market share in key segments like mobile and live betting, revenue growth rates will slow and margins will be squeezed.

Betsson Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Betsson compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Betsson's revenue will grow by 7.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 16.3% today to 19.5% in 3 years time.
• The bearish analysts expect earnings to reach €279.0 million (and earnings per share of €2.02) by about July 2028, up from €188.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 8.0x on those 2028 earnings, down from 12.6x today. This future PE is lower than the current PE for the GB Hospitality industry at 18.1x.
• Analysts expect the number of shares outstanding to grow by 0.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.55%, as per the Simply Wall St company report.

Betsson Future Earnings Per Share Growth

Risks

• Betsson is experiencing double-digit year-over-year growth in both deposits and revenue, with group revenue rising 18% and EBIT up 11%, indicating continued expansion of top-line and bottom-line financials despite absorbing higher gaming taxes.
  
• The company is making successful entries into newly regulated and high-growth markets such as Brazil, Argentina, Paraguay, and Poland, which not only diversifies geographic risk but also positions Betsson for sustainable revenue growth as these markets ramp up their contribution.
  
• The B2B segment is expanding rapidly, now representing 31% of group revenue and growing over 30%, with a more diversified customer base, which decreases concentration risk and creates a recurring, stable revenue stream to underpin earnings.
  
• Investments in proprietary technology, product development, and exclusive content (e.g., unique games in Argentina, enhanced live betting) are driving operational efficiency, improving user experience and engagement, and supporting robust net margins and customer retention.
  
• Operating cash flow and earnings per share are demonstrating strong positive momentum, with operating cash flow reaching all-time highs and a net cash position of €178 million on a robust balance sheet; this financial strength enables ongoing investments in growth and continued returns to shareholders, supporting long-term EPS and value creation.

Valuation

• The assumed bearish price target for Betsson is SEK150.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Betsson's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK200.0, and the most bearish reporting a price target of just SEK150.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €1.4 billion, earnings will come to €279.0 million, and it would be trading on a PE ratio of 8.0x, assuming you use a discount rate of 6.6%.
• Given the current share price of SEK194.1, the bearish analyst price target of SEK150.0 is 29.4% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.