As the stock market ebbs and flows, small-cap players often emerge from the shadows, manifesting opportunities that savvy investors consider a touch of golden exploration. Speaking in this context and a testament of tenacity is Genius Sports, a player that as if by David versus Goliath miracle, continues to intrigue despite recent turbulent waters. It is without dispute that the past month has been challenging for this digital sports titan, as it witnessed a substantial shedding of its stocks by 24.18%, a phenomena that propelled it into a bear market. Yet it now seems, this perceived slump might have been a cloud with a silver lining. The stock has now been dubbed as the current best small-cap in the fast-paced, high-staked world of sports gambling by an analyst at Oppenheimer.
Oppenheimer analyst, Jed Kelly, brings attention to Genius Sports’ unique position in his insightful report. According to him, the glitter of Genius lies not only in its profile as a small-cap equity, valuated at roughly $1.15 billion at the market’s end yesterday, but also in its intriguing business model. Unlike others in the sphere, Genius caters to the sports betting industry as a picks and shovels provider. As such, being free of exposure to market share trends largely overshadowed by industry behemoths like FanDuel by Flutter Entertainment and DraftKings – thereby sidestepping the notorious consumer-facing side of the industry. This strategic placement safeguards the company from the direct impact of the dominant duopoly as well as from detrimental consumer spending trends.
Instead, the genius of Genius lies in its offer of vital services and state-of-the-art technology to operators. This has led to making strong inroads in a duopoly with its competitor, Sportradar, in the sports betting data market.
Kelly doesn’t stop at underlining the advantages of Genius’ business model. A significant catalyst that has breathed a new life into Genius Sports, as noted by Kelly, is the overall 10% stake reduction by Apax Partners in the company, leading to an ownership of 21.3 million shares.
News arrived on Monday, April 8, that a partner at Apax, Gabriele Cipparrone, is stepping down from Genius data providers following this share sale. According to Kelly, this transaction might erase a potential sponsor distraction, ramp up the liquidity of Genius’ stocks, and invite investors to reevaluate the company’s strong fundamentals.
In light of this development, Genius’s CEO, Mark Locke, commented, “Over the course of the past three years, we have strived diligently as a public company to amass a remarkable group of public equity investors. We are immensely proud to consider them our shareholders, our partners. With greater liquidity in our stock, we anticipate attracting and retaining thoughtful and long-term shareholders.”
In response to the recent changes, Genius is now in the process of seeking competent board members to take the place of previous Apax Partners representatives.
Looking ahead, Genius had previously provided assurance to its investors that by 2024 it expects to post sales of a whopping $480 million, with an adjusted EBITDA of $75 million. The company also foresees a promising picture for this year with a forecast of positive free cash flow. Additionally, it reckons a breakeven on the basis of earnings per share in 2025 before turning profitable in the subsequent year based on the same yardstick.
So, while today’s closing price may have hung slightly somber at $5.52, the future might hold better fortunes for this sports-tech marvel. With 9 out of the 10 analysts rating it with equivalents of “strong buy” or “buy”, a consensus price target of $9.15 is currently being suggested. This implies an attractive opportunity, with an upside potential of 65.76%.
