Genius Sports running a ‘two-horse race,’ Truist analyst says
On 1 July, Truist Securities initiated coverage of Genius Sports, giving it a “Buy” rating and a $14-per-share price target. Shares of GENI were trading for US$10.40 apiece at the time of analyst Barry Jonas’ report.
Truist described Genius as providing “data and technology solutions across the sports betting, media, and sports industries.” It boasted 700 partnerships, encompassing leagues, teams, sports books and even broadcasters, across more than 150 nations.
Because of Genius’ ongoing partnerships with the NCAA and NFL, it was characterized as a high-visibility play with limited risk of volatility. Jonas painted a picture of a business-to-business derby in sports betting that has boiled down to a “‘two-horse’ race creating high barriers to entry and minimizing risk for contract losses,” as Genius vied with Sportradar.
Jonas lauded Genius as an innovator, citing its BetVision and FanHub products. These were described as moving the revenue mixture more towards high-margin segments like advertising and proposition bets.
“We see the media business as particularly unique with management noting a longer-term potential of US$500 million in revenue,” Jonas continued. He found credibility in Genius executives’ medium-term forecasts of 20% revenue growth and 30% cash-flow margins.
“We see GENI as an integral part of the sports betting ecosystem given its exclusive data rights to some of the most popular leagues … which are crucial for betting operators,” Jonas resumed. “While those operators have revenue volatility risks around bad luck/higher taxes, GENI has less as it mostly receives fixed, guaranteed revenues with some variable kickers offering upside.”
The analyst also liked Genius’ ability to capitalize on the growing popularity of proposition bets in the United States market. He felt its media business also had growth potential.
He explained that Genius’ media division “is particularly unique as the company has an ad-buying platform leveraging its access to real-time data to connect any brand,” whether that be DraftKings or Walmart, “to the sports fan in a cost-efficient and personalized way. Overall, we think GENI is well positioned for sustained cash generation and potential shareholder returns given its strong revenue growth and improving operating leverage.” The company carried no debt at present.
Risks to Genius were headlined in the form of potential, but not seen as likely, contract losses. Such an event would, it was believed, materially disrupt Genius’ revenues and margins. Even a contract renewal was not necessarily an entirely positive event, for “the price to pay for a renewal could be high. That said, we see any major contract loss as unlikely given the limited competition, value of incumbency, and GENI’s embedded technology’s switching costs.”
Jonas also thought it possible, but unlikely, that leagues could disconnect from Genius by cutting deals with OSB providers directly. But “it would require lots of effort (i.e. gaming license, technology skills).”
The remaining hurdle for Genius might take the form of tax increases or a continued rise by prediction markets. Such might have a negative impact on Genius’ stock.
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David McKee is an award-winning journalist who has three decades of experience covering the gaming industry.
