Rising Third Party Content And Regulation Risks Will Eventually Support A Stronger Long Term Position

Catalysts

About Hacksaw

Hacksaw develops and distributes online slot games, combining in-house titles with content from third-party studios through its OpenRGS platform.

What are the underlying business or industry changes driving this perspective?

• Although the company is expanding its OpenRGS portfolio, with 8 external studios live and a rising release cadence, the heavier use of third-party content can pressure average margins even as it supports revenue scale, which may limit future EBIT margin expansion.
• Although online slots are reported by third-party sources to be growing faster than broader iGaming and Hacksaw estimates its market share at below 5%, intense competition for operator shelf space could cap take rates and slow any uplift in revenue per game over time.
• While the company has built a diversified geographic mix across EMEA, the Americas and Asia Pacific, and sees longer term potential from regulated iGaming in the U.S., the current regulated U.S. addressable market remains relatively small, which may delay a step change in revenue from higher value regulated markets.
• Although Hacksaw is steadily onboarding new operators and broadening its client base, with the top customer at 13% of gross gaming revenue and the top 10 at 64%, consolidation among operators or tighter compliance requirements could reduce volumes from key customers and weigh on revenue growth.
• While the company is investing in additional headcount, capitalized game development and its technical platform to support higher production and distribution, these upfront costs may run ahead of monetization in some periods, which could compress net margins and earnings if game performance or launch timing softens.

Assumptions

This narrative explores a more pessimistic perspective on Hacksaw compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Hacksaw's revenue will grow by 23.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 67.7% today to 74.4% in 3 years time.
• The bearish analysts expect earnings to reach €277.0 million (and earnings per share of €0.96) by about March 2029, up from €133.6 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €333.7 million.
• 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 10.7x on those 2029 earnings, down from 11.6x today. This future PE is lower than the current PE for the SE Entertainment industry at 12.4x.
• The bearish analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.97%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Growth in online slots is described as strong, but management also highlights FX headwinds and chance driven RTP effects. A less favourable long term mix of currencies and RTP outcomes could soften top line momentum and reduce the conversion from gross gaming revenue into reported revenue and EBIT margins.
• Hacksaw is rapidly scaling its OpenRGS third party content and expects this to grow faster than in house games. While this currently contributes less than 10% of revenue, management explicitly notes that OpenRGS carries lower margins, so a higher long term share of this revenue could cap or erode the current 82% adjusted EBIT margin and weigh on earnings growth.
• The company is investing heavily in headcount, capitalized game development and its platform, with employees rising from 139 to 251 in a year. If revenue growth from new games and clients slows versus this expanded cost base, the high operating leverage that currently supports strong cash flow conversion could work in reverse and compress net margins and earnings.
• Only 13% of 2025 revenue is from locally licensed jurisdictions despite management viewing regulated markets like the U.S. as an attractive long term opportunity. If regulation tightens faster than new markets open or if state level iGaming legalization in large U.S. states remains limited, the mix could shift towards lower value or more restricted markets and constrain revenue growth and profit per round.
• Customer and game concentration is improving but still meaningful, with 13% of gross gaming revenue from the largest customer and 44% from the top 10 games. If a key operator loses share, renegotiates take rates, or a few hit titles fade faster than expected, the impact on gross gaming revenue could be disproportionate and weigh on revenue, EBIT margins and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Hacksaw is SEK90.1, which represents up to two standard deviations below the consensus price target of SEK103.18. This valuation is based on what can be assumed as the expectations of Hacksaw'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 SEK130.46, and the most bearish reporting a price target of just SEK90.1.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be €372.1 million, earnings will come to €277.0 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of SEK57.33, the analyst price target of SEK90.1 is 36.4% 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.