Rivalry Corp has a 155 per cent runway, says Eight Capital

Eight Capital analyst Adhir Kadve likes the odds on sports betting and media company Rivalry Corp (Rivalry Corp Stock Quote, Charts, News, Analysts, Financials TSXV:RVLY) faring well in the newly-opened Ontario sports betting industry. Kadve gave a report on Toronto-based Rivalry on Monday, saying the company is now making an advertising push to compete in the new market.

Ontario opened up legal single-game sports betting on Monday, with the Alcohol and Gaming Commission of Ontario saying that 16 gaming operators were up and running out of the gate, as a number of companies look to set up shop in the fledgling industry.

For Rivalry, which has an online betting platform with a focus on esports as well as sports betting and holds a sports bookmaker license in Australia and an Isle of Man license since 2018, the new era started off with a marketing campaign with the theme, “Bet on Canada. Bet on Rivalry” across Toronto and including display ads on TTC streetcars.

“We do things differently at Rivalry. We are aiming to be the sportsbook for the next generation through engaging content and innovative experiences that entertain and create loyal fans of Rivalry who come back for more,” said Steven Salz, Co-Founder and CEO of Rivalry, in a Monday press release. “To launch in our home market feels like a dream come true, and a very significant milestone in our creation of a leading global brand.”

The $91-million market cap Rivalry has mostly been dropping since its debut on the Venture Exchange in October and is currently down about 45 per cent over that time span and about even year-to-date.

But Kadve is bullish on the stock, maintaining his “Buy” rating and $4.00 target price, which at the time of publication represented a projected one-year return of 154.8 per cent.

Of the new betting market in Ontario, Kadve said it stands as a significant opportunity for Rivalry given the potential size — Kadve estimates it to be $400 million in gross gaming revenue at 18 months post-launch. The field is expected to be competitive, the analyst said, so much will depend upon execution from Rivalry, as there are several well-established international sportsbooks operating in the market.

“We believe Rivalry is well positioned to compete with these peers given a newly announced direct advertising campaign (details below) to further enhance its traditional advertising efforts where it leverages its leadership position in esports betting and social media,” Kadve said. 

“Recall that esports act as a top-of-the-funnel user acquisition tool for the company (which it then cross-sells into traditional sports) and the company uses an efficient social media strategy where it leverages local content creators and influencers. This strategy results in an efficient and low CAC – allowing Rivalry to compete with its larger peers,” he wrote.

“We continue to like Rivalry as an up-and-coming sportsbook and believe that the company offers investors exposure to the growth of sports and esports betting globally and importantly the opportunity to benefit from the potential growth of the Ontario sports betting and iGaming market, as one of the only Canadian-listed pure-play sportsbooks,” Kadve said.

Rivalry, which is set to report fourth quarter 2021 financials later this month, issued its first set of financials as a public company in late November where revenue was $3.7 million, representing a 679 per cent year-over-year increase and an 11 per cent sequential increase. Adjusted EBITDA came in at negative $4.1 million. Both top and bottom lines were better than Kadve’s estimates at the time, which were at $3.2 million and negative $5.5 million, respectively.

For the Q4, Kadve is now calling for total revenue of $1.2 million, gross profit of $0.5 million and an adjusted EBITDA loss of $4.3 million. 

“We expect some seasonality in Q4 as the esports calendar effectively goes into the offseason post a strong October (which saw the company generate a monthly record handle of $12.8 million), until mid-January,” Kadve wrote.

The analyst said he’ll be looking for updates from Rivalry on any early results from the Ontario rollout, along with updates on the status of the company’s Australia launch and on new potential grey market launches.

“Further, we expect commentary on the company’s cross-selling efforts between its esports, traditional sports betting and its casino offerings as the company continues to diversify into a balanced sportsbook with a target mix of 70/30 esports and traditional sports betting,” Kadve wrote.

On valuation, Kadve estimates RVLY to be currently trading at 2.3x 2022 Sales, which is roughly in line with its Online Gaming operator peers at 2.6x. 

“Our $4 target price implies 8x EV/ F22E Sales, a premium to Online Gaming operators on account of higher growth rates and potential for total addressable market expansion,” he said.