After Last Month’s IPO, is Sportradar (SRAD) a Good Investment?
Since the Supreme Court returned the power to legalize sports gambling back to the states, the U.S. has seen a boom to the industry that shows no signs of slowing down. In the month of September, New Jersey’s sportsbook took in $1 billion in bets, becoming the first state to ever eclipse this mark. Just the online segment of the industry was valued at over $2 billion in the US for 2020, and this figure is expected to grow at a CAGR of 17.34% from 2021-2026. This increasing legalization of sports betting in the U.S. has opened the door for new, innovative companies to take advantage and cater to this growing market.
Sportradar Group AG (SRAD) is a Swiss-based technology provider of business-to-business (B2B) solutions to the global sports betting industry. It’s platform offers integrated sports data and technology platforms that simplify its customers’ operations, drive efficiencies and improve fan experiences. SRAD’s software solutions address the sports betting value chain from traffic generation and advertising technology to the collection, processing, and extrapolation of data and odds.
In this article, I will analyze SRAD’s fundamentals to identify if the sport betting data provider is a good investment after the company’s recent IPO.
Since its listing last month on the NASDAQ, SRAD shares declined moderately and are down 6.9%, underperforming its benchmark, the iShares Expanded Tech-Software Sector ETF (IGV), which advanced slightly, up 3.38% during the corresponding period.
The fundamentals of the sports betting data provider are improving, which is constructive for SRAD’s long term prospects
The company’s net sales are expected to grow at a rapid pace in the coming years. SRAD’s top line is estimated to advance double-digit in the next two years, lifting by 21.7% to €673m in 2022 and raising by 19.1% to €807m in 2023.
On the other hand, even if the sport betting company does post a declining bottom line in 2021, down 6.57% year-on-year to €14.2m, SRAD’s net earnings should provide some bounce. In the next two years, the company’s earnings are expected to jump by more than 2x in 2022 to €49.2m and advance rapidly in 2023, up 68.6% to €83m.
In addition, SRAD posts a healthy balance sheet that is expected to enhance. The company is estimated to have a net cash position of €323m in 2021, which should appreciate to €404m in the following year, corresponding to a rise of 25.1% year-on-year. Moreover, the company’s CAPEX has increased significantly this year and should continue to do so in the coming year, with capital expenditure reaching €86.3m in 2022, representing a healthy 12.8% of its sales.
In spite of these promising financials, SRAD is currently trading at elevated valuation metrics. With a 2022e EV/EBITDA of 42.51x and a 2022e P/E ratio of 121.7x, investors should not hurry to buy SRAD’s shares and wait for a healthy retracement before jumping in.
SRAD’s position in the high-growth global sports betting market justifies its premium valuation
SRAD is the world’s largest data distributor and has a 40% market share in the concentrated B2B sports data distribution sector. With this strong market position, SRAD should benefit from the high-growth global sports betting market, which is expected to grow 12% per year from 2020 to 2023.
After completing its IPO in September and raising $600m in the process, SRAD’s available funds for future acquisitions have enhanced. This should enable it’s target of being a high-growth business with new products, technologies, or content rights that will lift its profitability and therefore sustain its share price.
The company’s business provides cash flow generation predictability, as 78% of its 1,600 clients are providing a recurring revenue stream, thanks to SRAD’s subscription-based business model.
There is significant room for SRAD to grow in its nascent markets, including the U.S., where regulatory tailwinds such as the expansion of the sports betting industry have propelled comparable companies. SRAD has already stepped in to hasten growth prospects in the U.S., as it recently announced that basketball legend, Michael Jordan, will serve as a special adviser to the company’s board and that it will at the same time increase his investment in SRAD.
I believe investors looking to get a foot into the sports betting industry should add the world’s largest data distributor, SRAD, to their portfolio. It is my view that the recent underperformance of the stock does not accurately portray the underlying company. The company is a leading in the B2B sport betting data distribution industry and has delivered consistent profits over the years.
In addition, the company operates in a high-growth global market and provides predictable revenue streams. The company is currently trading at high valuation metrics, nevertheless, given its proven track record and its high growth prospects, the valuation premium is justified.