theScore gets another price target raise at Echelon Wealth

With the announcement last Friday of its entry into online sports betting in the state of New Jersey, Toronto-based media company theScore (theScore Stock Quote, Chart, News TSXV:SCR) has received another price target raise from Echelon Wealth Partners analyst Rob Goff, who says the announcement gives more confidence that the company will launch its betting platform well before the start of the NFL season during the first week of September.

TheScore on Friday said the New Jersey Division of Gaming Enforcement (DGE) had granted an initial approval authorizing its subsidiary, Score Digital Sports Ventures, to engage in Internet and mobile sports wagering activities in the state, with a soft launch of its sportsbook app with a select group of bettors occurring first in the upcoming days ahead of a state-wide launch.

“This is a huge milestone and a result of the tireless hard work that has gone into getting our sportsbook ready for launch,” said John Levy, Founder and CEO of theScore, in a press release. “We can’t wait to debut a best-in-class sports betting offering in New Jersey, delivering a truly unique and holistic sports media and wagering experience for fans.”

Goff says that although he expresses caution to investors, saying that the prep period for theScore is likely to mean higher opex and that a full realization of betting contributions could be three or more years away, given delays required for state level approval, the new announcement nonetheless means that a significant regulatory hurdle has been crossed.

“[Friday’s] announcement reaffirms our inclusion of theScore in Echelon Wealth Partners’ Top Pick Portfolio at the beginning of Q319,” writes Goff in an update to clients last Friday. “We continue to see value in the shares ahead of monetization of sports betting and eSports where user/viewership continues to strengthen across app users and social platforms.”

“We continue to look for sports betting to stimulate legacy app user growth, strengthen advertising yield gains, and prospectively introduce new revenue streams on transactions. We believe theScore’s focus on mobile users, its heavy in game usage (~70 per cent), and its scale strengthen its partnership leverage in the betting ecosystem. The impressive success of Draft Kings and FanDuel speak to the value of established client lists and the ability to transfer existing/recent relationships into mobile betting,” he says.

Goff notes that as theScore moves ahead with its sports betting platform, the company has a clear opportunity to tap into its existing user app base, “likely with little to no appreciable new customer acquisition costs,” and thus the monetization of sports betting from its existing user base would be in large part accretive to the company’s earnings.

Echelon is calling for fiscal 2019 revenue and EBITDA of $30.8 million and negative $5.0 million, respectively, and fiscal 2020 revenue and EBITDA of $38.4 million and $0.0 million, respectively.

Goff is maintaining his “Speculative Buy” rating for SCR with the new target of $0.80 (previously $0.70), which represents a projected return of 45.5 per cent at the time of publication.

Earlier this month, theScore announced the closing of its previously announced private placement for proceeds of US$10 million, US$7.5 million of which has been subscribed by Penn National Gaming, with whom theScore has a partnership allowing it to offer its betting and i-gaming across 11 states via Penn’s casinos and racetracks. Proceeds of the private placement are to be used towards the company’s expansion and sports betting platform in the US. (All figures in Canadian dollars unless noted otherwise.)