Genius Sports Ltd (GENI)
What's the OVER/UNDER on Sportsbook Data Collection Company $GENI?
Genius Sports Ltd is a SMALL CAP stock founded in 2015 and started trading on the NYSE in April 2021. In their own words from numerous Genius press releases:
“Genius Sports is the official data, technology and broadcast partner that powers the global ecosystem connecting sports, betting and media. Our technology is used in over 150 countries worldwide, creating highly immersive products that enrich fan experiences for the entire sports industry.” [https://investors.geniussports.com/news/default.aspx]
Clint’s Take:
Sometimes, the "big names" may be out of reach in a red-hot investment sector because of your budget or other constraints. In cases like that, I search for a smaller company that provides a service or some aspect that grows the larger business. I think GENI is exactly that within the absolute juggernaut that is online sports gambling, which was a $7.6B industry in 2023 and is projected to reach $14.4B by 2027 (according to research firm Statista). Much of that growth will be due to further legalization throughout the US. Currently, 38 states allow sports betting in person, and only 29 of those online. Take North Carolina, for example, which recently passed online sports betting legislation but is yet to open it; there are already a multitude of promo code speculation websites on which provider will offer the best new account match bonus. Currently, BetMGM-North Carolina is leading with a 100% match amount up to $1600. Today, major casinos are not the only ones to bring their sportsbook online. DraftKings (DKNG), FanDuel, majority owned by Flutter Entertainment PLC (FLTR) on the London Exchange, and even Disney (DIS), with the launch of ESPN Bet, have an ever-growing presence in online gambling. DraftKings and FanDuel also have an established market share in some states that don't even allow sports betting yet through a head-scratching loophole that labels Daily Fantasy Sports (DFS) as "skill" as opposed to "chance," making it legal? You pick players, predict outcomes, and bet money. Sounds like gambling to me. And the DFS influence can even be seen in sports coverage. You'd be hard-pressed not to see a "Daily Fantasy Breakdown" segment on any of the major network's pre-game coverage. The once dirty, unspoken facet of sports now gets a graphic, crawler, and tease before the break.
Now, where does GENI fit in? They touch every part of the sports landscape while adding a few unique twists of their own.
GENI offers Sportstech, which collects data and provides analysis with the use of Artificial Intelligence (AI) for your team or league management. Owners, coaches, and administrators can use the information for focused practices, planning, or disseminating stats to the fan base. GENI's Sportstech is used by Major League Baseball (MLB), the NCAA, the PGA Tour, and Premiere League Football, to name just a few.
They have broadcasting solutions. Whether big (like CBS Sports) or small (Liga Dominicana de Fútbol, LDF), GENI has a broadcast or streaming toolset to innovate the way you bring your sport to the masses powered with (again) AI.
And what many will overlook as a true winner for GENI is fan-targeted advertising. From selling tickets to rideshare services to the stadium or even food and drink watching the game at home. Launching the privacy-compliant FanHub ID has cut the costs of teams and advertisers' customer acquisition. Jersey Mike's, Buffalo Wild Wings, and Major League Soccer (MLS) agree. And surprise-surprise aided by AI as well.
But what about sports gambling? Well, I highlighted the other products for a few reasons. First, GENI has a baseline business without even getting into its sportsbook services, which makes it broader. Second, it doesn't qualify as a proper AI investment, but it is A LOT of AI and worth considering on that front. Then, finally, what do you get when you combine a sports data analysis system with a streaming platform and a user-targeted ad service, all fueled by AI? A focused, intuitive, engaging online gambling experience. Or at least that is what GENI is hoping for with their BetVision.
Building off their existing partnerships with FanDuel and the NFL (now an exclusive deal for live data distribution through the 2027-28 season), GENI hopes to change the face of live sports betting. GENI provides 98% of the sports betting market with official NFL data. Through BetVision, as the NFL games stream on your device (with reported low latency), FanDuel users will see in-game player stats and probability while making real-time wagers. The micro and prop bet possibilities are endless. $2 on the next play being a pass or $5 it's a run are coming to a couch near you. Who knew the dollar my father and I would pass back and forth, betting on sacks and interceptions while watching my Bears vs. his Packers, would become a billion-dollar industry today?
As for the balance sheet, GENI is just okay. I would've expected more with all the irons in the fire and partnerships list that looks like an ESPY seating chart. Earnings made some EPS progress but have leveled off at a -$0.06 range, and the same is expected for Q4FY23. Revenue is up +29.8% in 2022 year over year and looks to be the same outlook this year. Operating costs are way down since 2021 ($347mm) and have continued to drop since ($184mm in 2022 and on pace for $130mm in 2023). From my read, the R&D heavy lifting is out of the way, and things should be moving upward sooner than opposed to later. The current $5.60 stock price seems a little high for me, but it could be a value if it gets closer to $5.10-$5.20.
Phil’s Take:
Maybe it’s because my Detroit Lions made the playoffs this year, or because I am already creating my March Madness travel plans, but I don’t think I am going out too far on a limb when I say that there might be some value in this whole sports gambling concept.
In all seriousness, there is a lot to like about GENI’s profile. They’re a tech company near the center of a rapidly growing sports gambling industry. They tout long term relationships with 650+ sports and sportsbook, they have a link to the NFL which is the highest revenue sports league on the planet. They expanded their partnership with FanDuel and just announced the expansion of their relationship with FIBA. That partnership will make GENI FIBA’s Official Data & Video Capture and Production Partner as well as FIBA’s Official Innovation & Technology Services Partner from 2025 for a 10-year term.
On the numbers side things are a little more convoluted. For a company with so many positive relationships, I’d like to see them convert those relationships into earnings at a better rate. Their Price/Sales ratio is 3.45x, towards the higher end of what I like to see in long term holds. The same with GENI’s Price/Book of 2.11x. The math can always be a little misleading with companies who have yet to turn a profit, but they’re still worth checking on. GENI’s earnings per share also seemed to stagnate a little in 2023. That lack of profitability relative to positive news may be the ceiling that is keeping GENI’s stock price from returning to the $7 range it enjoyed in July. Sports gambling is a growing industry and companies who can provide a valuable product in that space are going to be presented with plenty of opportunities to earn money. GENI stock saw some nice gains after the FIBA news was announced in December, so I like the market’s willingness to reward positive news. I would like to see some positive momentum on earnings when they announce in March (3/07/2024).
Moving Forward:
We agree that GENI is on the edge of something big with BetVision. I particularly like the exclusiveness of the NFL deal. That assures that even if someone else rips off the idea, they won’t be able to capitalize on pro football, at least. We are putting GENI in the “Checking My Math” watchlist for those reasons. We’ll watch closely to see if the stock price can come down some and trend sideways for a while. I agree with Phil that some of the missing pieces may be in that Q4 call. In the meantime, I have some tech questions (BetVision’s stream latency and broadcast usage rights) I haven’t found solid answers for, but I will keep digging and post an update.
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*Note: Throughout this post we talked about the business of gambling and online accessibility to gambling. Any mention of “gains” or inference of making money was solely in the businesses that profit from the handling, processing, and tracking of bets. We recognize that the act of gambling has at times had negative impact on countless individuals and families. If you or a loved one struggles with problem gambling, we encourage you to please seek assistance. 1-800-GAMBLER (1-800-426-2537) and its website: https://www.ncpgambling.org/help-treatment/ have the resources to get you started.
