Navigating Google's Shifts And Market Dynamics Fuels Robust Growth And Tactical Wins

Key Takeaways

• Strategic adaptation to Google's policy changes and efficient marketing have led to strong performance, enhancing site visibility and revenue.
  
• Focus on digital market growth, optimistic financial forecasts, and active M&A indicates a strategy for sustainable expansion and profitability.
  
• Gambling.com Group faces challenges from Google's policies, market regulations, competitive dynamics, partnership costs, and currency fluctuations, impacting its revenue and market position.

Catalysts

Operates as a performance marketing company for the online gambling industry worldwide.

• The immediate and effective response to Google's policy changes by recalibrating their portfolio of owned and operated sites, leading to less pronounced impacts and strong Q2 performance against initial expectations, which could enhance visibility and traffic to their higher-margin owned and operated sites, positively impacting revenue and margins.
  
• Significant growth in customer acquisition and the efficient creation of value for online gambling operator clients through performance marketing, which is expected to mimic established market levels in North America as it matures, potentially increasing the customer base and revenues from performance marketing services.
  
• The continuous digitization of the gambling and advertising industries, with Gambling.com Group's strong positioning through their portfolio of brands, which could capture a high-intent audience and boost client conversions, leading to revenue growth from digital advertising and online gambling affiliations.
  
• An optimistic revised revenue and adjusted EBITDA guidance for the year based on the strong first half performance, with confidence in further growth and market share gains supported by effective execution, strategic acquisitions, and robust free cash flow generation, signifying potential improvements in revenue, net margins, and earnings.
  
• Active evaluation and engagement in mergers and acquisitions (M&A) to pursue right targets, bolstered by a strong balance sheet and free cash flow, which could enhance the company's market positioning, expand its portfolio, and contribute to long-term revenue and EBITDA growth, indicating a strategy for sustainable expansion and profitability enhancement.

Assumptions

• Analysts are assuming Gambling.com Group's revenue will grow by 12.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.1% today to 25.5% in 3 years time.
• Analysts expect earnings to reach $42.1 million (and earnings per share of $1.05) by about November 2027, up from $25.6 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $28 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.1x on those 2027 earnings, up from 13.7x today. This future PE is greater than the current PE for the US Media industry at 13.7x.
• Analysts expect the number of shares outstanding to grow by 3.24% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 6.85%, as per the Simply Wall St company report.

Risks

• The company's reliance on Google's search algorithm and the impact of Google's policy changes can affect visitor traffic to their owned and operated sites, potentially impacting revenue and growth.
  
• The increase in costs of sales, particularly due to higher-than-expected contributions from media partnerships, could squeeze profit margins, affecting net income.
  
• Regulatory risks in the online gambling and advertising industries can introduce volatility to the company's operational environment, potentially affecting earnings and market expansion efforts.
  
• The competitive landscape in online gambling and sports betting, with operators refining affiliate strategies and possibly reducing dependency on affiliates, may impact Gambling.com Group's market share and revenue growth.
  
• Currency exchange rate fluctuations, particularly with guidance assuming an average euro to USD exchange rate of 1.09, could impact reported revenue and profitability, especially considering the company's international diversification and revenue generation in various currencies.

Valuation

• The analysts have a consensus price target of $14.29 for Gambling.com 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 $18.0, and the most bearish reporting a price target of just $13.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $165.4 million, earnings will come to $42.1 million, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 6.9%.
• Given the current share price of $9.64, the analyst's price target of $14.29 is 32.5% 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.