Data Rights And Media Trends Will Shape A Stable Long Term Sports Betting Outlook

Catalysts

About Genius Sports

Genius Sports provides official sports data, technology and media solutions that power sportsbooks, leagues and advertisers globally.

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

• Although the rapid adoption of in play wagering and products like BetVision is driving handle mix toward higher value bets, any slowdown in U.S. online betting growth or regulatory constraints on bet types could cap the pace of revenue expansion and pressure variable gaming related upside.
• Although exclusive long term data rights for major football properties such as Serie A and the European Leagues expand Genius Sports content moat, rising rights costs and timing mismatches between rights expenses and monetization may constrain gross margin progress and limit adjusted EBITDA leverage.
• Although the shift of brand spend into measurable, data driven sports advertising and agency partnerships is fueling nearly 90 percent Media growth, intensifying competition from large ad tech and streaming platforms could compress pricing power and temper long run improvements in Media segment net margins.
• Although deeper integration of first party fan graphs and transactional data through acquisitions like Sports Innovation Lab enhances targeting, stricter global privacy standards and identity limitations may slow scaling of high yield audience products and moderate earnings growth from the advertising stack.
• Although expanding prediction markets and the internationalization of U.S. sports such as the NFL could open new addressable markets for official data and integrity services, cautious regulatory rollout and deliberate engagement by Genius Sports may delay meaningful incremental revenue and cash flow contribution.

Assumptions

This narrative explores a more pessimistic perspective on Genius Sports 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 Genius Sports's revenue will grow by 16.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -19.7% today to 5.8% in 3 years time.
• The bearish analysts expect earnings to reach $56.3 million (and earnings per share of $0.21) by about December 2028, up from $-119.2 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $218.1 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 76.0x on those 2028 earnings, up from -22.5x today. This future PE is greater than the current PE for the US Hospitality industry at 21.2x.
• The bearish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.79%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The company is currently delivering very strong top line growth, with group revenue up 38 percent year on year and guidance raised to 28 percent growth for the full year. If this pace of expansion continues or accelerates as Betting and Media scale globally, the resulting uplift in revenue and earnings could drive the share price higher rather than keep it flat.
• Management is targeting long term group margins of 30 percent and is already expanding adjusted EBITDA margins by 400 basis points this year to 21 percent. If margin expansion persists alongside rising EBITDA and stronger operating cash flow, the structurally improving profitability profile could materially re-rate the valuation and push the share price up.
• BetVision adoption is growing rapidly, from 6 sportsbook customers last year to over 100 today, covering more than 23,000 events annually and driving a much higher in play handle mix. If this high margin, high engagement product continues to gain penetration across sports and geographies, the compounding impact on Betting and Media revenue as well as net margins could support sustained share price appreciation.
• The Media segment is benefiting from powerful secular trends in measurable, data driven sports advertising, with nearly 90 percent year on year revenue growth, new agency relationships and proprietary fan graph data from Sports Innovation Lab. If brands keep increasing spend on Genius unique inventory, long run Media revenue and earnings could grow faster than the market expects, potentially lifting the stock.
• Emerging verticals such as prediction markets and the international expansion of key properties like the NFL represent additional long term growth optionality. If regulation evolves favorably and Genius leverages its official data and integrity solutions to monetize these new markets at scale, the incremental revenue and earnings streams could increase the company’s intrinsic value and share price over time.

Valuation

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

• The assumed bearish price target for Genius Sports is $11.37, which represents up to two standard deviations below the consensus price target of $15.32. This valuation is based on what can be assumed as the expectations of Genius Sports'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 $20.0, and the most bearish reporting a price target of just $10.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $962.7 million, earnings will come to $56.3 million, and it would be trading on a PE ratio of 76.0x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of $11.23, the analyst price target of $11.37 is 1.2% 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.