While the full realization of its betting contributions is still likely at least three years away for Score Media and Gaming (Score Media and Gaming Stock Quote, Chart, News TSXV:SCR), analyst Rob Goff of Echelon Wealth Partners thinks investors should be paying attention to the company’s strong core user base which can be easily tapped for sports betting.
Goff delivered a client update on Thursday in which he named SCR one of his Top Picks and announced a target upgrade.
Score Media creates mobile sports apps to deliver real-time news, scores, fantasy updates and alerts to sports fans as well as a betting platform, theScore’s Mobile Sportsbook, which had its launch in the state of New Jersey last month. The company’s share price has done well this year, currently trading up 110 per cent year-to-date, but Goff says that the stock is still undervalued.
“Despite the gains, we believe that SCR remains undervalued at its current price considering the significant monetization potential from its betting platform where the New Jersey launch represents a key test-bed. With wagering over the last twelve months put at US$3.4 billion in the NJ market (source: New Jersey Division of Gaming Enforcement), a modest 2 per cent share would equate to ~$8 million in revenues for Score Media based on a 6 per cent royalty,” says Goff.
Goff points to a Deloitte report, TMT Predictions for 2019, which contends that in 2019, 60 per cent of North American men aged 18 to 34 who watch sports on TV will also bet on sports and that the more often they bet, the more TV sports they will watch. Goff says that as Score Media moves ahead with its betting platform it has a “clear opportunity” to tap its existing user app base for sports betting, likely with little or no appreciable new customer acquisition costs.
“Betting represents a huge market on its own while it is seen as a significant catalyst for user growth and advertising. SCR’s clear focus and early mover strategy support aggressive prospects across all drivers. We recognize the potential for betting to recalibrate Score’s user growth and revenues. As we have noted, SCR’s focus on mobile users and its heavy in-game usage (~70 per cent) provide direct leverage to monetize on sports betting,” Goff writes.
Last month, Score Media announced that it had entered into an investment agreement with Fengate Asset management whereby the latter will invest $40 million in Score Media to fund its expansion plans.
“theScore’s unique ability to integrate sports betting into their industry-leading mobile sports media platform makes this investment a strong addition to our growing private equity platform investing across North America,” said Fengate’s managing director Justin Catalano.
Goff says that he is “very bullish” towards the Fengate deal, where the $40-million purchase is through 8.00 per cent (per annum/ payable semi-annually) convertible unsecured subordinated debentures due in August 31, 2024.
Goff has revised his estimates for SCR to include the introduction of betting and related upfront costs. He is now calling for fiscal 2019 revenue and adjusted EBITDA of $31.3 million and negative $6.5 million, respectively, and fiscal 2020 revenue and adjusted EBITDA of $45.9 million and $5.9 million, respectively.
The analyst has reaffirmed his “Speculative Buy” rating and has raised his target price from $0.80 per share to $0.90 per share, which represented a projected return of 66.7 per cent at the time of publication.