Fund Manager Predicts Revival of Sportradar Similar to DraftKings
Following a solid first quarter earnings report, Sportradar's (NASDAQ: SRAD) shares experienced a surge on Wednesday. Prior to this, the sports betting data provider's shares had been stagnant for a long period of time. One investment professional predicts good times are on the horizon for this stock.
In a detailed post on X (the new name for Twitter), Radnor Capital - a pseudonym for an anonymous fund manager - likened the current sentiment on Sportradar stock to that of DraftKings (NASDAQ: DKNG) a couple of years ago. They noted that people appreciated the solid business model but felt the stock would never excel due to unmanageable customer acquisition costs. DraftKings has since risen by roughly 4 times since that narrative was popular.
Radnor Capital also holds shares in DraftKings. Since its September 2021 initial public offering (IPO), Sportradar has had a difficult journey. The stock closed at $21.83 for that month, but ended at $10.60 the day before.
Similarities with DraftKings
Sportradar and Genius Sports (NYSE: GENI) are not directly involved with the consumer-facing side of the sports betting industry. Instead, these companies acquire data rights from sports leagues and sell this data to gaming companies, including BetMGM, DraftKings, and FanDuel, among others.
This business model ties Genius and Sportradar to the expansion of legalized sports betting, but they're not as dependent on consumer spending as traditional sportsbook operators. The technology they provide, crucial for live betting and same-game parlays (SGPs), is used by sportsbook operators to generate profits.
Despite their favorable role, Sportradar has faced a "mechanical/ technical overhang" stemming from a lack of liquidity in its shares and a small number of institutional investors owning more than 60% of the float. Other professional investors have opted for clearer stories like DraftKings, avoiding the intricacies of Sportradar. This doesn't detract from the data providers' alluring potential in the long run.
"Bull case math for Sport Radar suggests 2026 revenue could be around $1.5 billion to $1.6 billion (versus the street's estimated $1.3 billion to $1.4 billion) and close to $400 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) (compared to the street's estimated $300 million)," Radnor said. "I arrived at these numbers using a 20% compound annual growth rate (which we have visibility into given the contracted nature of their business) and a 25% EBITDA margin (the low end of their 25-30% long-term target). Even if we don't see multiple expansion (which I find hard to believe, given the upside to numbers), the stock's value should theoretically grow with earnings growth greater than 20%."
Sportradar Can Handle League Fees
Sportradar and Genius are in a unique position, being between content providers (sports leagues) and consumers, accessed by sportsbooks. Some analysts have raised concerns that the data providers could be pressured to overpay for league data and risk not recouping those expenses through increased client revenue.
Radnor noted Sportradar managed to maintain its EBITDA margins despite increased rights costs associated with relationships with the NBA and the ATP (tennis). This indicates that the company can deal with the costliest aspects of these agreements without major financial strain.
"These sports rights costs are straight line amortized over the life of the investment, meaning the costs will remain flat for the existing contracts," noted the money manager. "Moreover, the betting volumes are likely to grow, along with the introduction of more valuable services for the sportsbooks. This will significantly bolster margins, projected to hit around 25% by 2026 (the street's estimate is 22%), and 30% in the longer term, from about 18% currently."
Read also:
- Remaining contenders down to two in DFB's struggle versus Brazil.
- Schalke's Transfer Assessment: A Season of Wastefulness
- Shocking development in the NBA!
- Law enforcement agencies in various metropolises plan expansive measures for May 1.
Source: www.casino.org
