Rivalry Corp is a buy, Eight Capital says

Following the company’s second quarter financials, Eight Capital analyst Adhir Kadve remains bullish on Rivalry Corp (Rivalry Corp Stock Quote, Chart, News, Analysts, Financials TSXV:RVLY).

On August 29, RVLY reported its Q2, 2023 results. The company lost $6.3-million on revenue of $8.5-million, a topline that was up 60 per cent over the same period last year.

“In Q2 we delivered a nearly threefold increase in handle year-over-year,” CEO Steven Salz said. “Increased marketing sophistication and enhancements to our core product have led to operational improvements, increased player wallet share and a material year-over-year reduction in cost of customer acquisition, positioning us well in the coming quarters. The growing strength in these underlying fundamentals continues to validate Rivalry’s global brand leadership in e-sports betting, and more broadly, in delivering a world-class on-line gambling experience for the next generation of fans.”

Kadve broke down the quarter.

“Rivalry reported a Q2 print beating our Handle estimate while Revenue and Gross Profit were largely in-line. Rivalry continues to successfully deploy its differentiated user acquisition strategy, which is leading to strong unit economics including 44% y/y growth in customers acquired whilst spending 41% less on customer acquisition and increasing avg. Handle/customer by +60%,” he said. “The strong unit economics and initiatives such as growing sports book volume and a margin-enhancing product roadmap all bode well for the company’s path to profitability, which is now expected in H1/F24. With the seasonally stronger H2 period providing upside opportunities to our estimates and the clear path to profitability, we continue to believe that Rivalry’s shares remain undervalued and see a strong setup for the balance of the year and into F24.”

In a research update to clients August 30, the analyst maintained his “Buy” rating and one-year price target of $3.25 on RVLY, which closed the previous day at $1.68, implying a return of 93.5 per cent at the time of publication.

Kadve thinks RVLY will post an Adjusted EPS loss of $0.28 on revenue of $47.5-million in fiscal 2023. He expects those numbers will improve to Adjusted EPS of positive $0.03 on a topline of $86.1-million the following year.

“Our target price is based on 2.5x F24E EV/Revenue, Rivalry currently trades at 1.2x,” the analyst explained. “Key risks to our target and rating include deteriorating macroeconomic conditions, intensifying competition and regulatory changes.”

About Rivalry Corp. (via Company handout)

Rivalry wholly owns and operates Rivalry Ltd., a leading sport betting and media company offering fully regulated on-line wagering on e-sports, traditional sports and casino for the next generation of bettors. Based in Toronto, Rivalry operates a global team in more than 20 countries and growing. Rivalry has held an Isle of Man licence since 2018, considered one of the premier on-line gambling jurisdictions. Rivalry holds a sports bookmaker licence in Australia and an Internet gaming registration in Ontario, and is currently in the process of obtaining additional country licences. The company also has a variety of originally developed products, including Quest, an on-site engagement experience, a first party casino game called Rushlane and a proprietary casino platform that houses third party games, Casino.exe.