theScore gets a target cut from Echelon Wealth Partners

Yes, sports betting should soon become legal in some US states but you won’t see its impact on theScore Inc.’s (theScore Stock Quote, Chart TSXV:SCR) balance sheet anytime soon, says analyst Rob Goff of Echelon Wealth Partners, who trimmed his price target following the company’s fourth quarter report.

TheScore released its fiscal Q4 2018 financials this Wednesday, reporting revenue and EBITDA of $5.10 million and negative $2.35 million, respectively (all figures in Canadian dollars). That measured up against the consensus at $5.68 million and negative $0.94 million, respectively, and Goff’s own estimates at $5.91 million and negative $0.59 million, respectively.

Goff says that the EBITDA drain can be attributed to facilities and administrative costs including preparations for legalized betting, which could be impacting the company’s bottom line for some time to come.

“We believe theScore’s focus on mobile users, its heavy in-game usage and its scale strengthen its partnership `leverage in the betting ecosystem. However, we caution that investors are likely to see betting result in higher opex before realizing gains through user stimulation, incremental advertising and over time more directly related betting revenues,” says the analyst in an update to clients on Friday.

“While awaiting stronger user trends for its legacy sports app following an improved FQ418 year-over-year gain, we believe the recognition of theScore’s success building out its broader viewership and eSports together with its potential to monetize on sports betting support our bullish view,” he says. “Recognition of prospective betting and eSports monetization are expected to buy time for theScore to strengthen its legacy app users, monetize on eSports and social platform audiences and bring clarity to sports betting monetization.”

Goff has revised his estimates, now calling for 2019 revenue and EBITDA of $30.6 million and negative $0.8 million, respectively (was $33.7 million and $3.7 million), while his 2020 estimates remain unchanged at revenue and EBITDA of $36.5 million and $3.3 million, respectively.

Goff is maintaining his “Speculative Buy” rating with the new 12-month target of $0.45 (previously $0.50), representing a projected return of 61 per cent at the time of publication.