Posted on: April 2, 2024, 05:24h.
Last updated on: April 2, 2024, 05:24h.
Amid a month-long slump that’s seen the stock shed 24.18% and enter a bear market along the way, it’d be easy to be dismissive of Genius Sports (NYSE: GENI), but at least one analyst believes investors should consider a different view.
In a new report to clients, Oppenheimer analyst Jed Kelly called Genius the best small-cap play on the burgeoning domestic sports wagering industry. Small-cap equities are generally defined as those with market values up to $2 billion. With a market capitalization of $1.15 billion as of today’s close, Genius fits that bill.
Kelly said one of the perks associated with Genius is that as a picks and shovels player in the sports betting space, it’s not exposed to market share trends, which are largely dominated by Flutter Entertainment’s (NYSE: FLUT) FanDuel and DraftKings (NASDAQ: DKNG). That is to say as a data provider, Genius isn’t exposed to the consumer-facing side of the industry, meaning it’s not adversely affected by the aforementioned duopoly or negative consumer spending trends.
Rather, Genius provides services and technology essential to operators. In fact, it’s arguably part of a duopoly of its own as it and rival Sportradar (NASDAQ: SRAD) dominated the sports betting data market.
Genius Sports Loses Overhang
Another catalyst for Genius Sports, as noted by Oppenheimer’s Kelly, is the removal of a drag on the stock following Apax Partners reducing its stake in the company by about 10% to 21.3 million shares.
On Monday, Genius told investors that Gabriele Cipparrone, a partner at Apax, is stepping down from the data providers, effective April 8, following the share sale. Kelly said the Apax transaction could remove a sponsor distraction, boost liquidity in Genius shares, and compel investors to reexamine the company’s attractive fundamentals.
We have spent the last three years as a public company working very hard to cultivate a remarkable group of public equity investors who we are proud to call shareholders in Genius Sports,” said Genius CEO Mark Locke in a statement. “With further liquidity in our stock, we look forward to continuing to attract and to retain the type of thoughtful and long-term shareholders we are fortunate to call our partners today.”
Genius said it’s undertaking “a comprehensive search” to find qualified board members as replacements for those previously classified as representatives of Apax Partners.
Other Catalysts for Genius Sports
Genius previously told investors it expects to post 2024 sales of $480 million on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $75 million. Positive free cash flow is also in the cards this year.
The company could also break-even on the basis of earnings per share (EPS) in 2025 before turning profitable by that metric the following year.
Of the 10 analysts covering the stock, nine rate it the equivalents of “strong buy” or “buy” and the consensus price target of $9.15 implies upside of 65.76% from today’s closing price of $5.52.
