The precipitous rise and fall in recent months of the share price for Score Media and Gaming (Score Media and Gaming Stock Quote, Chart, News, Analysts, Financials TSX:SCR) has been a sight to behold. And while the sports betting potential for the company remains huge, investors may want to tread carefully says portfolio manager James Telfser, who thinks a broader investment in a sports betting ETF might be a better place to put your money.
Score Media started popping last November on news that the Canadian federal government had introduced a bill to legalize single-event wagering in Canada. Then came very positive quarterly results in January, which pushed the stock even higher. All told, SCR grew by an amazing 700 per cent between November and February before the pullback arrived, dropping the stock to now the low-$20 range, which while still about a three-bagger over the past six months is a few steps down from where it was a few months ago.
Part of the problem is the newness of the sports betting industry, which although vast in the United States at about $8 billion is still finding its feet, as more and more states legalize online betting and more platforms arrive to fill in the space. That makes for shaky foundations for investors, says Telfser, partner at Aventine Investment Counsel.
“You want to be really careful with a lot of these new sectors that are popping up,” Telfser said, speaking on BNN Bloomberg on Wednesday. “We all remember the Score Media five or six years ago when it was all about having an app — and it’s a great app. I think probably a lot of Canadians use The Score app to check out their sports. Now they’re pivoting into online gambling, which is just a good business.
“I think what people like about this particular story is that it’s a new market so the addressable market is a bit of an unknown, like how cannabis stocks were not that long ago,” he said.
“There are a lot of players getting into the space, so it could potentially end with an acquisition of Score Media. I think there’s been some speculation about that,” Telfser said.
Score Media touts a sports news and stats platform along with its sports betting app Mobile Sportsbook, which first launched in New Jersey in September 2019 and is now active in further states Indiana, Colorado and Iowa. Score Media’s ace in the hole is its four million average monthly active users of its news and stats app, a group which the company intends on pulling over to betting, both in the US and, if and when, in Canada.
A sign of the company’s potential was on display in January with Score Media’s fiscal first quarter 2021 results which showed the total amount of money bet on its platform (the handle) grow by over 5x, hitting $55.8 million for the quarter — and that was at a time when major sports leagues like the NBA and the NHL were not operating due to COVID-19 restrictions.
“We continue to deepen our market-leading media and betting integrations and achieved year-over-year handle growth of 535 per cent on theScore Bet,” said CEO John Levy in a January 13 press release. “While still in the early stages of this fast-growing industry, we are steadily strengthening our expanding footprint in the North American sports betting market. Now, following successful recent launches in Colorado and Indiana, we’re on track to launch in Iowa in the coming weeks, subject to regulatory approval.”
Score Media’s fiscal Q1 revenue was $8.5 million compared to $9.2 million a year earlier, while the company generated a net loss of $12.7 million compared to a loss of $4.1 million in Q3 2020.
With all that success during a supposed fallow year for sports, the pullback on SCR over the past two months may seem surprising. Part of the cause might be a sector wide retreat in the fledgling sports betting sector — other names like Penn National Gaming and Draftkings have had similar downturns in recent weeks.
In the case of Score Media, the company’s most recent quarter, delivered last week, may not have helped matters. The company’s fiscal Q2 reported revenue down 16 per cent year-over-year to $5.59 million and represented a notable miss on analysts’ consensus forecast for $6.65 million. At the same time, Score Media hit another record for its handle at $81.6 million for the Q2.
Telfser says a less risky play than Score Media might be an ETF that covers more of the emerging sports betting field.
“We really don’t know yet what that total addressable market is going to look like and how much money they’re going to make from that market,” Telfser said.
“There are a whole bunch of ways to play the space if you like that online sports betting space. There’s an ETF called BETZ, there’s Penn Gaming and there are a couple of others, so I would focus on those more so than the individual Score Media which can potentially give up some of that lofty valuation,” he said.