Genius Sports shows signs of life (NYSE:GENI)

Young man plays video games on his smartphone and gets angry when he loses the game

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Genius Sports (NYSE:GENI) has had a challenging few years as its share price plummeted from around $25 per share on May 24, 2021 to a low of $2.20 per share in early July 2022.

As of August 2022, the company’s shares started an upward move, trading in a range of $3.60 to around $4.80 before posting a further increase to around $5.50 per share before closing on August 9. Falling back to around $4.60 in November 2022.

It seems to me, particularly after the company’s most recent earnings report, that it may have turned around and is positioned for a period of growth, albeit one that will likely prove bumpy.

In this article, we’ll dive into some of the numbers and highlights from the earnings report and explain why I think the company is poised to enter a period of sustained growth.

Latest Earnings

Revenue for the third quarter was $78.7 million, up 14 percent year-on-year and up $1.47 million.

GAAP earnings per share were -$0.04, up $0.04 from the stock.

Net loss for the quarter was $9.0 million, an increase of 87 percent from a year ago for the same period. The improvement was attributed to profitability gains, a decrease in stock-based compensation and a currency gain. Adjusted EBITDA was $7.7 million compared to a loss of $0.4 million in the third quarter of 2021.

For the nine months ended September 30, 2022, GENI had revenue of $235.7 million, exceeding guidance of $231 million and Adjusted EBITDA of $13.1 million, exceeding guidance by 12 surpassed $.00 million.

At the end of the quarter, GENI had approximately $150 million in cash on hand. Of that, $33 million was restricted. The Company has historically stated that restricted cash will be returned to the ‘Cash and cash equivalents’ line item on the balance sheet over time.

By the end of fiscal 2022, GENI expects cash and restricted cash on hand to be in the range of $140 million to $150 million. That could change due to exchange rates in the last quarter.

In terms of guidance, GENI expects full-year 2022 revenue to be approximately $340 million and Adjusted EBITDA to be approximately $15 million. For 2023, the company is forecasting revenue in a range of $430 million to $440 million with adjusted EBITDA of $40 million to $50 million.

The figures above assume a GBP:USD exchange rate around the current 1.10 to 1.15 level.

GENI guidance for 2022.

company presentation

Performance by segments

Genius Sports, which bills itself as the “official data, technology and broadcast partner powering the global ecosystem that connects sports, betting and media,” operates through three segments: Betting Technology, Media Technology, Content and Services, and Sports Technology and services. We’ll look at their performance in the third quarter.

Betting Technology, Content and Services

Betting Technology, Content & Services is the company’s largest unit, confirming it with revenue of $49.2 million, up 13 percent year-over-year. The improvement resulted from an increase in new customer acquisitions, the consumption of more available content and the expansion of existing value-added services while offering new services.

Media technology, content & services

Media Technology, Content & Services generated revenue of $17.9 million in the third quarter, up 29 percent from the third quarter of 2021.

On the positive side, it was mainly driven by organic growth as well as some new customer wins. Organic growth was driven by existing clients using more of its programmatic advertising services.

Sports Technology & Services

Sports Technology & Services increased revenue to $11.6 million for the quarter, up 6 percent on a constant currency basis. The main reason for this was an increase in sales at Second Spectrum.

GENI entered into new partnerships with 27 sports betting customers, indicating a significant improvement in its performance in the future.

The company also launched “new free-to-play games in partnership with NFL organizations.” That has meaning for becoming more sticky while also attracting potential paying customers.

Conclusion

As mentioned earlier, GENI fell to a 52-week low of $2.20 in early July and started to recover about a month later. With GENI’s stock price doubling since July, the question is whether much anticipated growth is already being priced in.

My thought is that once the market digests the numbers, particularly in relation to each segment, along with the guidance they provide, I think there’s decent upside potential for the company in 2023.

I like its momentum as it bounces off a poor performance that started a year ago in November 2021.

While the gaming sector as a whole has fallen out of favor in some cases, I believe there is increasing money flowing into it from consumers looking to enjoy experiences again after a lengthy lockdown.

What remains to be determined is how deep and long the current recession will last and how much disposable income consumers have. This, in turn, will determine how much capital GENI’s customers are willing to spend on its products and services.

I tend to relax a bit on the gaming industry, assuming nothing too drastic is happening on the economic front. In this scenario, wallets are tightening and shareholders will have to wait a little longer to be rewarded.

One last thing, I think the best way to easily and simply track GENI’s performance is to closely monitor its Betting Technology, Content and Services department. Since it easily accounts for more than 50 percent of sales, the performance of this unit will be the performance of the company.

The other segments will of course contribute to the overall performance, but that will be the main driver for the foreseeable future.

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