Eight Capital analyst Adhir Kadve says newly IPO’d Rivalry Corp (Rivalry Corp Stock Quote, Chart, News, Analysts, Financials TSXV:RVLY) is off to a strong start. Kadve reviewed the company’s quarterly numbers in an update to clients on Thursday where he maintained a “Buy” rating and target price of $4.00/share for a projected return of 55 per cent.
Toronto-based Rivalry organization has an online betting platform which it leverages in tandem with a differentiated media strategy to attract the next generation of esports and sports bettors.
Kadve’s update comes after Rivalry Corp released its financial results for the third quarter of 2021, the company’s first since becoming a publicly traded organization.
“As we previously noted in our initiation, we continue to see Rivalry as an up-and-coming betting platform, which uses esports as an access point to attract the highly valuable under 30 year-old GenZ/Millennial bettor,” Kadve said.
Rivalry’s first public financial report was headlined by revenue of $3.7 million, good for 11 per cent sequential growth, a 679 per cent year-over-year improvement, as well as providing a beat on the Eight Capital projection of $3.2 million in revenue.
The company experienced a record in its quarterly handle (the amount of money wagered by bettors), which came in at $23.2 million for sequential growth of eight per cent and a year-over-year increase of 141 per cent. October proved to be an important month for the company, as $12.8 million of its total handle came in that month, with Kadve attributing the spike to marquee esports events such as the League of Legends World Championships and Dota 2’s The International.
With 90 per cent of its handle coming from esports, Kadve expects some drops on account of seasonality with esports being in an offseason of sorts, but also noted that the company is aiming to be at a 70-30 revenue mix between esports and traditional sports by the middle of 2022.
Kadve also noted that the company has $40 million in cash available with no debt, leading to a belief that the company will increase its spending on key marketing initiatives through its user acquisition model, and increasing personnel and R&D spending, with the aim of enhancing the overall platform.
The company’s adjusted EBITDA also provided a beat, as the reported $4.1 million loss came in ahead of the Eight Capital estimate of a $5.5 million adjusted EBITDA loss, though the increased investment meant it came in behind the reported $2.5 million loss from the previous quarter.
Rivalry’s gross margin was largely in line with projections at 16 per cent compared to the 20 per cent projected by Eight Capital.
“We are at the center of an inevitable generational tidal wave that is reshaping consumer products across multiple industries, including sports betting,” said Steven Salz, Co-Founder and CEO of Rivalry in the company’s November 24 press release announcing the quarterly results. “Through market leading brand equity, innovative product development, multiple new gambling licenses in process, and an unparalleled team, I’m confident Rivalry will continue to demonstrate to shareholders why we can define this new generational paradigm in sports betting.”
The new reports prompted Kadve to revise some of his financial projections, putting his 2021 revenue projection into eight figures at $10.1 million compared to the previous $9.6 million estimate for potential year-over-year growth of 573 per cent, while leaving his 2022 revenue projection at $27.3 million, a potential year-over-year increase of 170.3 per cent.
Kadve also maintains his previous gross profit estimate of $2.3 million for 2021, but he has lowered his 2022 projection from $10.9 million to $8 million, though the new figure still results in a potential year-over-year increase of 247.8 per cent.
From an adjusted EBITDA perspective, Kadve has raised his projection for the upcoming fourth quarter to a $4.3 million loss from the previously estimated $6.9 million, contributing to a revised 2021 figure of a $13.2 million loss instead of the previously estimated $17.2 million loss. His 2022 adjusted EBITDA loss projection remains at $16.1 million.
On the EV/Sales multiple, Kadve projects at 12.9x for 2021 before dropping to a forecasted 4.8x in 2022.
Overall, Kadve believes Rivalry’s position in the betting market has the potential to become much stronger going forward.
“We see several avenues of growth for Rivalry which support our forecasts such as new regulated market launches in Australia and Ontario, ongoing entry into new grey markets, increase in marketing spending and meaningful cross-sell efforts aimed at growing the traditional sports betting and casino offerings,” Kadve said.
Since it began trading on the TSX Venture Exchange on October 5, Rivalry Corp’s stock value has dropped by 16 per cent.