Step right up and place your virtual bets. Eight Capital analyst Adhir Kadve initiated coverage of Rivalry Corp (Rivalry Corp Stock Quote, Chart, News, Analysts, Financials TSXV:RVLY) on November 4 saying the company has what he believes to be a peerless property in its space. Kadve started Rivalry off with a “Buy” rating and target price of $4.00/share for a projected return of 72 per cent.
Kadve’s stance on the company, which specializes in esports and traditional betting, stems from the company’s target market of sports bettors under 30 years old, which is where the esports betting platform comes into play.
“Rivalry aims to create true product differentiation by focusing on a user experience catered to this incredibly valuable demographic and building brand affinity with them, with the ultimate goal to cross-sell them from esports into their other product offerings such as traditional sports betting and casino offerings,” Kadve said.
The Toronto-based outfit’s exposure to esports actually predates the emergence of esports as a mainstream culture point, with the company having started in 2016. The esports movement is still in full effect according to Newzoo, which projects esports to generate total revenue of $1.6 billion by 2024 for a compound annual growth rate of 14 per cent, paired with an ever-growing audience expected to reach 577 million for a CAGR of eight per cent in the same timeframe.
Adding to the optimism around the industry is that none of the above numbers include revenue from esports betting, according to Kadve.
In his investment thesis, Kadve points out multiple significant avenues of future growth for the company, which has experienced a similar explosion to esports with sevenfold revenue growth year-over-year from the first half of 2020 to the $5.2 million reported for the first half of 2021, along with 20 per cent monthly growth for its handle, with potential opportunities to expand its market share in its existing markets through the launch of new markets including Australia (fourth quarter of 2021) and Ontario (first half of 2022), as well as through possible mergers and acquisitions.
Kadve also notes that Rivalry is effective at leveraging its social media following to bring in new users, with an ability to use the $40 million in cash on its balance sheet to deploy its marketing plans effectively.
Rivalry has also worked to effectively create its own market through the launch of Rushlane, a proprietary casino property intended to create a new genre of online gaming, known as Massively Multiplayer Online Gambling Games (MMOGG). Rushlane brought about a rush of new interest in Rivalry and its offerings, contributing to a record monthly betting handle of $12.8 million in October, along with a tripling in monthly active bettors on a year-over-year basis.
“In October Rivalry delivered an all-time record performance across nearly all KPIs. I believe this is a testament to the focus and drive of the team in our first month as a public company,” said Steven Salz, Co-Founder and CEO of Rivalry in the company’s November 3 press release. “In addition to going public, we launched Rushlane, an innovation in Casino games that we believe will reinvent the category (MMOGGs), applied to become a fully registered operator for sports betting and internet gaming in our home province of Ontario, and experienced record activity across the business.”
“These milestones help to enhance Rivalry’s global brand equity as a leader in next gen esports betting, our position as innovators in the sector, and increase the number of geographies globally that Rivalry can legally operate in,” Salz added.
After a positive 2020 in which Rivalry nearly tripled its revenue to $1.5 million, Kadve forecasts another major step forward in 2021, projecting the company to cash in with revenue of $9.6 million in 2022 for potential year-over-year growth of 518 per cent, then projecting to nearly triple again in 2023 with revenue of $27.3 million.
Kadve puts the company’s position into perspective through the EV/Sales multiple, the only valuation data available in his analysis. He projects the multiple beginning in 2021 at 12.1x before dropping to a projected 4.2x in 2022; in both years, Rivalry compares favourably to the American standard bearer, DraftKings, which projects at 13.6x in 2021 and 9.7x in 2022.
Furthering the DraftKings comparable, Rivalry’s present trading rate of 4.2x its estimated 2022 sales is in line with other online gaming operators, but the target price implying a multiple of 8x presents it as a bargain to its more established competitor.
Meanwhile, Kadve projects further losses in the company’s EBITDA after reporting a $6.4 million loss in 2020, forecasting a $17.2 million loss in 2021 and a $16.1 million loss in 2022.
“In our view, Rivalry offers investors exposure to the growth of both esports and traditional sports betting in both regulated and grey markets globally,” Kadve said.
Since it began trading on the TSX Venture Exchange on October 5, Rivalry Corp’s stock value has dropped by 14.7 per cent, though it has rebounded somewhat since bottoming out at $2.33/share on November 3.