Genius Sports (NYSE:GENI) may not be on your radar but it’s a leading player in live data and streaming services for sporting events.
As a technology provider, Genius Sports delivers real-time sports video and data to sports betting platforms, making it an integral logistical component of the growing sports wagering industry.
GENI share price has had a bumpy road since going public but what does the future hold now, and is the stock on the cusp of rising once more?
GENI Is A Play On a Growth Market
Genius Sports is a pick-and-shovel play on the increasingly popular sports betting market. The company boasts partnerships with more than 400 sports leagues and more than 300 sportsbooks. With this kind of network, Genius Sports enjoys a strong moat against arch-rival SportRadar.
Crucially, Genius Sports maintains partnerships with FanDuel and DraftKings, two of the largest sports betting platforms in the world.
Given that the sports betting market is expected to deliver compounded annual growth rates of over 10% through the rest of the decade, Genius Sports is in a prime position to take advantage of this market growth by providing services to multiple sportsbooks.
The management team has made the most of its opportunity in the sports market by turning in quite strong revenue growth. Until Q2 of this year, the company had reported double-digit year-over-year revenue growth rates in each quarter since it went public in 2021.
Even though growth was lower in Q2, Genius Sports only missed the double-digit market slightly by reporting revenue growth of 9.9%.
In addition to relationships with sports betting platforms, the company also has long-term contracts with several major sports organizations that protect it from competitive pressure. The NFL, for instance, recently extended Genius Sports’ exclusive rights to video and data distribution through the season that will end in early 2028.
This kind of long-term exclusivity extends the company’s moat and allows it to continue scaling for the foreseeable future.
But, Ongoing Losses & No Immediate Path to Profit
While Genius Sports does have many positive characteristics, profitability isn’t among them. The best trailing 12-month net margin the company ever reported was -16.7% in Q1 of 2021. As of the most recent quarterly report, that number was -21.9%.
Even with the company’s reasonably strong financial position, this level of loss is worrisome. In the last year, Genius Sports lost a total of $85.5 million.
The bigger problem for investors is that Genius Sports doesn’t actually seem to have a path to near-term profitability. Analysts don’t project the company reaching profitability until Q4 of 2025.
Given that the company has consistently underperformed consensus earnings estimates over the last two years, though, it’s far from certain that Genius Sports will break even or become profitable within the next year or two.
An additional black swan Genius Sports faces is the possibility of a macroeconomic slowdown that may temporarily reduce the growth of the sports betting market.
With the risk of a recession by the end of next year now being called at about 45% and unemployment rising, consumers may become less willing to allocate discretionary income to sports wagers.
This, in turn, has the potential to cause the businesses that Genius Sports serves to invest less in new services and technology solutions. Though sports betting is likely a long-term growth industry, a recession now may well delay the growth that many investors are expecting from it.
How Does GENI’s Price Look?
Despite losses, Genius Sports still trades at a fairly high price. GENI shares are currently priced at 3.8x sales, 3.1x book value and well over 400x cash flow. Given that the company is likely still quite a way off turning a profit, these ratios could put the stock in overvalued territory.
To some degree, though, this premium price tag could be justified by a combination of ongoing revenue growth and a strong balance sheet.
As of the end of Q2, Genius Sports reported total assets of $716.0 million and total liabilities of $163.6 million. With only $31,000 in combined current and long-term debt and a cash reserve of $67.7 million, the company’s balance sheet appears very solid.
The stock also a strong Buy rating, with 12 of the 13 analysts covering it offering buy ratings. Turning to institutional ownership, more than 80% of the company is owned by institutional investors and buying activity has more than tripled selling activity over the last 12 months.
Will GENI Stock Go Up?
GENI stock is forecast to go up as far as analysts are concerned with 13 of them pinning fair value at $9.35 per share, a rise of 25.9% from the current share price.
Genius Sports is an interesting mix of positives and negatives. On the one hand, the company enjoys a wide moat and sits at the center of a growing industry.
On the other, its lack of profitability and somewhat high valuation metrics present headwinds for investors and create the potential for future selloffs if the company suffers from any mis-steps or hits any bumps in the road.
As a growth company that lacks earnings, Genius Sports carries a decent amount of risk but it should be noted that the balance sheet appears strong enough to see it through to a profitable future.
Provided the company can continue moving in that direction towards a bottom line in the black, the odds of it taking on any meaningful debt to fund future operations is low.
Given the risks, GENI appears to be the domain of fairly risk-tolerant investors looking for upside in the popular sports betting market.
Those who are willing to buy and hold the stock may find long-term value in it. After all, Genius Sports has a long runway ahead as ever more states legalize sports betting, and past revenue growth suggests that management is succeeding in capitalizing on that opportunity.
Though the stock is likely to remain volatile, there appears to be an opportunity for ongoing returns from Genius Sports as the sports wagering industry increases in volume.
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