Acquisitions Of OddsJam And OpticOdds Will Expand Online Gambling Footprint

Key Takeaways

• Recent acquisitions are expected to expand market presence and drive revenue and net margin improvements through new consumer and enterprise subscriptions.
  
• Growth in the U.S. iGaming market and the integration of new services are seen as key drivers for long-term revenue and earnings enhancement.
  
• The company's acquisition-driven growth strategy risks integration challenges and competition pressures, which could impact margins and future earnings amid macroeconomic and regulatory uncertainties.

Catalysts

Operates as a performance marketing company for the online gambling industry in North America, the United Kingdom, Ireland, rest of Europe, and internationally.

• The recent acquisition of OddsJam and OpticOdds is expected to drive substantial growth by expanding Gambling.com's footprint in the online gambling ecosystem, potentially increasing consumer and enterprise subscription revenue. This is anticipated to positively impact both revenue and net margins.
  
• The company anticipates a significant increase in adjusted EBITDA due to synergies and growth opportunities provided by the recent acquisitions, contributing towards its goal of $100 million in annual adjusted EBITDA. This suggests strong potential for earnings growth.
  
• Gambling.com Group is planning to leverage its operator relationships and expand OpticOdds' enterprise subscription revenue. This is expected to contribute to revenue growth and improve net margins due to the long-term high-value contracts associated with this business segment.
  
• The anticipated growth in the U.S. iGaming market, with more states expected to approve online gambling, presents a potential boost to the company's top line and cash flow. This implies a strong forward-looking revenue growth catalyst.
  
• The integration of new Odds services into Gambling.com's existing products is expected to drive enhanced user value, resulting in increased customer acquisition and retention, thus supporting long-term revenue growth and improved net margins.

Gambling.com Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gambling.com Group's revenue will grow by 20.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 24.1% today to 25.3% in 3 years time.
• Analysts expect earnings to reach $55.5 million (and earnings per share of $1.56) by about April 2028, up from $30.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.1x on those 2028 earnings, down from 13.5x today. This future PE is lower than the current PE for the US Media industry at 13.7x.
• Analysts expect the number of shares outstanding to decline by 5.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.82%, as per the Simply Wall St company report.

Gambling.com Group Future Earnings Per Share Growth

Risks

• The company's reliance on acquisition-driven growth, such as with Freebets.com and OddsJam, poses integration risks that may impact short-term revenue and net margins if not managed effectively.
  
• The decline in North American sports revenue driven by lower state launch activity and reduced media partnerships could reflect potential challenges in sustaining revenue growth in this critical market.
  
• Increasing competition among affiliates, especially in new growth regions like Brazil, could compress margins and potentially impact long-term earnings.
  
• High reliance on a favorable macroeconomic environment and regulatory developments, particularly regarding iGaming and sports betting expansion in the U.S., could introduce volatility in future revenue growth.
  
• The company’s substantial use of its credit facility for acquisitions, with a total of $87 million drawn, may constrain future capital flexibility and lead to potential interest burden impact on net earnings.

Valuation

• The analysts have a consensus price target of $19.0 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 $21.0, and the most bearish reporting a price target of just $18.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $219.7 million, earnings will come to $55.5 million, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 6.8%.
• Given the current share price of $11.91, the analyst price target of $19.0 is 37.3% 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.