MLB Partnership And AI-Driven Solutions Will Fuel Global Expansion

Key Takeaways

• Acquisition of IMG ARENA and MLB partnership drive revenue growth, margin expansion, and long-term revenue visibility in expanding markets.
  
• Global and technological expansion enhances revenue streams, user engagement, and operational efficiencies, improving margins and free cash flow.
  
• Regulatory challenges and execution risks from the IMG ARENA acquisition, along with exchange volatility and sports rights dependencies, threaten Sportradar Group's financial stability and margins.

Catalysts

Provides sports data services for the sports betting and media industries in the United Kingdom, the United States, Malta, Switzerland, and internationally.

• The acquisition of IMG ARENA enhances Sportradar’s sports betting rights portfolio, including rights to tennis, soccer, and basketball, expected to be immediately accretive to the business and margins, driving future revenue growth and margin expansion.
  
• The strategic partnership with Major League Baseball through 2032, including an equity stake taken by MLB in Sportradar, provides long-term revenue visibility and opportunities in expanding markets such as Mexico, Korea, and anticipated future markets like Japan and India, impacting revenue and net margins positively.
  
• Global expansion, especially in emerging markets like Brazil, and the integration of iGaming services create additional revenue streams and client engagement, providing avenues for revenue growth and potentially higher net margins through cross-selling opportunities.
  
• The development of hyper-personalized products through advanced proprietary technology and AI-driven solutions, including micro markets and enhanced betting experiences, is expected to drive increased user engagement and betting activity, impacting top-line revenue positively.
  
• Operational efficiencies, including the automation of data collection and AI-driven managed trading services, are expected to sustain high margins and contribute to margin improvement over time, thus impacting earnings and free cash flow generation.

Sportradar Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sportradar Group's revenue will grow by 13.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.1% today to 12.1% in 3 years time.
• Analysts expect earnings to reach €198.5 million (and earnings per share of €0.65) by about April 2028, up from €34.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €224.3 million in earnings, and the most bearish expecting €171.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 44.6x on those 2028 earnings, down from 166.0x today. This future PE is greater than the current PE for the US Hospitality industry at 21.8x.
• Analysts expect the number of shares outstanding to decline by 0.26% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.48%, as per the Simply Wall St company report.

Sportradar Group Future Earnings Per Share Growth

Risks

• The acquisition of IMG ARENA involves regulatory reviews in certain international territories, which could delay the closing of the deal and impact revenue synergies and margin expansion projections.
  
• The IMG ARENA acquisition comes with inherent execution risks, including the challenge of integrating and capitalizing on the extensive portfolio of sports rights, which could affect revenue streams and net margins.
  
• Global market expansion is uncertain, particularly in emerging markets like Brazil, where competitive pressures and regulatory changes may impact the company's ability to capture expected revenues.
  
• The company's significant reliance on sports rights deals poses the risk of potentially high future costs and renegotiations, which could constrain net margins.
  
• Foreign exchange volatility, particularly with the U.S. dollar, has impacted previous net losses, and continued fluctuations may affect future earnings and financial stability.

Valuation

• The analysts have a consensus price target of $26.294 for Sportradar Group 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 $32.44, and the most bearish reporting a price target of just $12.25.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.6 billion, earnings will come to €198.5 million, and it would be trading on a PE ratio of 44.6x, assuming you use a discount rate of 7.5%.
• Given the current share price of $20.74, the analyst price target of $26.29 is 21.1% 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.