The Score and sports betting could be a combination that pays, says one analyst.
It’s up more than 100 per cent year-to-date, but don’t count out another rally on Score Media and Gaming (Score Media and Gaming Stock Quote, Chart, News TSXV:SCR) says Mackie Research Capital analyst Nikhil Thadani.
On Wednesday, Score Media reported its Q4 and fiscal 2019 results. In the fourth quarter, the company posted an EBITDA loss of $4.1-million on revenue of $6.4-million, a topline that was up 25 per cent over the same period last year.
“theScore Bet is live and taking bets in New Jersey, capping one of the most significant quarters and fiscal years in our history,” CEO John Levy said. “Not only did we successfully launch our new sports betting platform in the fast-growing New Jersey sports betting market, but we also secured market access rights for an additional 11 states via a highly-coveted partnership with Penn National Gaming. Along with New Jersey, this provides us with potential market access to offer mobile sports betting to about 30% of the U.S. population. We continue to explore strategic opportunities to bring theScore Bet to as many states as possible and are well capitalized to execute on our vision following the $40 million strategic investment by Fengate. It was also a record Q4 for advertising revenue in our media business, powered by strong direct sales deals in the U.S. and Canada, while records were also broken for Q4 engagement on our sports app as well as consumption of our esports and social content. The continued growth of our media business, combined with our unique and differentiated entry into the sports betting space, puts us in a strong position as we enter fiscal 2020.”
Thadani says there were some positives to take away from what is typically a blah quarter.
“SCR reported Q4 (Aug) F2019 revenue of $6.4 mln vs. MRCC $6.0 mln and consensus $6.1 mln,” the analyst notes. “Monthly average users in the quarter were 3.6 mln vs. our 3.86 mln users estimate, implying quarterly ARPU of $1.78/user/qtr vs. our $1.55 estimate. Q4 is typically SCR’s seasonally weakest quarter owing to the sports calendar, so we are encouraged by the higher user monetization, which once again benefitted from higher direct sales in the USA and Canada. Per management commentary, user monetization has not yet benefited from higher sports betting user engagement, which should be an organic revenue growth tailwind as sports betting gains traction. Video views of eSports content were ~85 mln (+160% y/y) & social reach was 142 mln across various channels. SCR has pro forma cash of nearly $40 mln (highest in the company’s history) as the company completed a convertible debenture private placement subsequent to quarter end. Recall, SCR also previously entered into a $5 mln demand credit facility (prime plus 100 bps) with a Canadian chartered bank, which remains undrawn as well as $1.6 mln of recoverable tax credits. As a result, the company has access to nearly $50 mln cash in order to develop new product features, launch sports betting in additional US states (& potentially Canada) as well as aggressively market its new offerings.”
In a research update to clients today, Thadani maintained his “Buy” rating and one-year price target of $1.00 on Score Media, implying a return of 59 per cent at the time of publication.
The analyst thinks the company will post EBITDA of negative $4.95-million on revenue of $37.5-million in fiscal 2020.
Thadani says sports betting could be a real catalyst for the stock in the months to come.
“SCR is up ~100% year-to-date, we expect the stock to reverse its recent pull back as additional sports betting data becomes available,” he said. SCR launched its sports betting app in New Jersey in September and while we expect to gain insight into SCR’s sports betting performance in January, September NJ sports betting data has been positive. Sports betting handle in the state of >US$445 mln in September 2019 was a record. A strong hold of ~9% suggests strong revenue for providers like SCR (~US$38 mln state wide).