New Studios And Digital Trends Will Unlock Future Potential

Key Takeaways

• Expansion into new regulated markets and studio launches positions Evolution for stable, long-term growth in digital and online gaming sectors.
  
• Exclusive partnerships and innovative game releases enhance product differentiation, driving higher margins and supporting sustained organic revenue expansion.
  
• Increasing regulatory, operational, and market pressures threaten Evolution's revenue growth, margins, and profitability, while diversification and expansion strategies carry heightened risk and execution challenges.

Catalysts

Develops, produces, markets, and licenses online casino systems to gaming operators in Europe, Asia, North America, Latin America, and internationally.

• Recent proactive ring-fencing and regulatory-driven limitations in Europe have caused a temporary revenue slowdown, but as more markets regulate and channelization improves, Evolution is well-positioned to capture renewed growth, especially as regulated markets unlock over time. This will enhance medium to long-term revenue visibility and stability.
  
• The rollout of new studios in large, high-growth regions like Brazil and the Philippines provides a strong platform to benefit from ongoing global digitalization and the legalization of online gaming, significantly expanding Evolution's addressable market and long-term top-line growth potential.
  
• The exclusive global content partnership with Hasbro greatly strengthens Evolution's product differentiation, reinforcing its ability to meet the rising demand for immersive, branded entertainment. This enhances both future revenue streams and pricing power, positively impacting margins and earnings as branded offerings typically carry higher value.
  
• A strong pipeline of over 100 planned game releases-emphasizing innovative formats and live experiences-positions Evolution to further capitalize on growing consumer demand for real-time, interactive gaming. This is expected to support organic revenue growth and operational leverage as fixed costs scale more slowly than revenues.
  
• Ongoing investments in optimizing the resource mix (regional studio allocation and operational efficiency) are set to drive higher net margins over time. As new, more efficient studios ramp up and older resource imbalances are addressed, Evolution is likely to benefit from improved cost discipline, supporting long-term earnings growth.

Evolution Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Evolution's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 53.7% today to 49.5% in 3 years time.
• Analysts expect earnings to reach €1.3 billion (and earnings per share of €6.58) by about August 2028, up from €1.2 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €1.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.9x on those 2028 earnings, up from 13.0x today. This future PE is lower than the current PE for the GB Hospitality industry at 14.9x.
• Analysts expect the number of shares outstanding to decline by 3.63% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.35%, as per the Simply Wall St company report.

Evolution Future Earnings Per Share Growth

Risks

• Heightened regulatory scrutiny and proactive "ring-fencing" in regulated European markets are already leading to negative revenue growth in Europe (-5% sequentially) and higher-than-anticipated compliance costs, potentially limiting long-term market expansion and compressing margins as the company adapts to ever-stricter regional regulations.
  
• Persistent cybercrime activity and stream theft in Asia, requiring continuous technical countermeasures, are eroding good revenue and generating ongoing operational risk, thereby introducing volatility and uncertainty into revenue streams from this key growth region.
  
• Growth in Evolution's RNG segment is stalling (0.3% annual growth this quarter, even after adjusting for a large payout) and appears structurally weaker than the live segment, raising questions about the long-term addressable market and diversification potential for future revenue and earnings growth.
  
• The expansion into new studios and geographies (e.g., the Philippines and Brazil) involves higher upfront costs, a need for hiring and resource reallocation, and the risk of slower-than-expected market adoption or mis-execution, which may pressure operating leverage and hinder near
• to medium-term net margin improvement.
  
• Ongoing regulatory reviews (such as in the UK), elevated operating expenses growing faster than revenue (10% OpEx growth vs. 3.1% revenue growth YoY), and currency headwinds combine to undermine the consistency of earnings growth and may lead to increased earnings volatility and lower profitability over the long term.

Valuation

• The analysts have a consensus price target of SEK942.554 for Evolution based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK1335.96, and the most bearish reporting a price target of just SEK649.92.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.7 billion, earnings will come to €1.3 billion, and it would be trading on a PE ratio of 13.9x, assuming you use a discount rate of 6.4%.
• Given the current share price of SEK866.0, the analyst price target of SEK942.55 is 8.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.