Regulatory Crackdowns In Brazil And Beyond Will Shrink User Base

Key Takeaways

• Stricter global regulations and rising industry competition threaten Better Collective's user acquisition, revenue growth, and bargaining power in key markets.
  
• Growing focus on data privacy, responsible gambling, and shifts in digital marketing may undermine their core affiliate model, compressing long-term monetization and margins.
  
• Strategic expansion into regulated markets, esports growth, and increased operating efficiency drive recurring revenue, improved profitability, and reduced vulnerability to digital disruption.

Catalysts

Operates as a digital sports media company in Europe, North America, and internationally.

• Increasing global regulatory scrutiny and the risk of government crackdowns on online gambling pose a significant threat to Better Collective's future revenue, particularly given the ongoing uncertainties in large markets like Brazil and the persistent risk of sudden restrictions or unfavorable tax and bonus rules that could drastically curtail both user acquisition and retention.
  
• Heightened focus on gambling addiction and responsible gaming could drive stringent advertising restrictions or outright bans on affiliate marketing in key jurisdictions, severely limiting Better Collective's ability to acquire new customers and thereby materially weakening revenue growth and earnings potential.
  
• Growing consumer prioritization of data privacy, coupled with evolving regulations such as GDPR and CCPA, threatens Better Collective's core data-driven and affiliate marketing model by reducing the effectiveness of user targeting and personalization, directly pressuring long-term monetization rates and net margins.
  
• Continued heavy dependence on search engine-driven organic traffic-despite stable recent performance-exposes the company to material downside risk from future algorithm changes or the rise of AI-powered search platforms, which could rapidly diminish site visibility, undercutting traffic generation and thus top-line revenue and EBITDA.
  
• Intensifying industry competition, increasing market saturation in key regions, and the rise of alternative digital engagement channels like influencer marketing and streaming platforms threaten to erode Better Collective's user base and bargaining power, placing long-term pressure on payout rates, average revenue per user, and ultimately compressing both top-line and bottom-line financials.

Better Collective Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Better Collective compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Better Collective's revenue will grow by 5.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 7.3% today to 19.8% in 3 years time.
• The bearish analysts expect earnings to reach €80.3 million (and earnings per share of €1.27) by about August 2028, up from €25.1 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 8.2x on those 2028 earnings, down from 26.2x today. This future PE is lower than the current PE for the SE Interactive Media and Services industry at 50.9x.
• Analysts expect the number of shares outstanding to decline by 5.71% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.14%, as per the Simply Wall St company report.

Better Collective Future Earnings Per Share Growth

Risks

• Ongoing global legalization and regulation of online gambling, with Brazil now fully regulated and Better Collective positioned as the largest digital sports media in the region, creates vast new addressable markets and potential for significant long-term revenue growth.
  
• Expansion into high-value markets such as the US, alongside the company's increasing focus on revenue share contracts, builds a growing base of recurring revenues that strengthens future earnings visibility and the quality of revenue.
  
• Continued investment in proprietary technology, data analytics, and cost efficiency measures has delivered a leaner, more efficient organization, which is likely to improve net margins and overall profitability going forward.
  
• Establishing Esports as its own profitable and rapidly expanding business segment-with industry-leading community platforms like HLTV and FUTBIN-positions the company to benefit from secular growth in esports engagement and digital advertising, supporting long-term EBITDA growth.
  
• The company's resilience to recent search engine algorithm changes and anticipated AI search disruption, as well as its strong focus on brand, authority, and performance-based marketing, reduces risk to organic traffic and supports sustained topline revenue and earnings.

Valuation

• The assumed bearish price target for Better Collective is SEK119.55, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Better Collective'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 SEK224.77, and the most bearish reporting a price target of just SEK119.55.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €405.6 million, earnings will come to €80.3 million, and it would be trading on a PE ratio of 8.2x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of SEK121.3, the bearish analyst price target of SEK119.55 is 1.5% lower. The relatively low difference between the current share price and the analyst bearish 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.