The Motley Fool in recent weeks has been ramping up their teaser pitches on the weekend over the past few weeks, sending quite a few questions our way — most of these have been pitches for their higher-end portfolio services like the various Extreme Opportunities services, and that’s also what has caught our eye this week.
The pitch doesn’t have a person’s name attached this time, and I’m not sure who runs this portfolio at the Fool, but what they’re advertising is a new service called Extreme Opportunities: Future of Entertainment ($1,300/yr, no refunds), and they say that they’re launching this with a focus on their top entertainment-related ideas, including both established “foundation” leaders (they say there are seven of those) and what they say are 13 exciting growth ideas…
“We’ve pinpointed 13 stocks that are pure plays into some of the most exciting growth areas across all of entertainment. These stocks include streaming plays, online video, advanced technology plays, and much more!”
And while they don’t talk about the seven “foundation” names much (I would guess that list would very likely include names like Disney (DIS), Netflix (NFLX), Roku (ROKU), Alphabet (GOOG), Activision Blizzard (ATVI) and Tencent (TCEHY)), they do hint at two of those smaller “pure play” ideas in the teaser pitch — the headliner is a gambling stock, here’s how they hint at it in the email ad I received over the weekend:
“RECENT IPO TARGETS 827X POTENTIAL GROWTH….
“Whether it’s daytrading or gambling, a LOT of people are looking for ways to make a quick buck online.
“That’s fueling some pretty impressive growth in the online gambling industry.
“(In fact, some experts are predicting that the online gambling market could be worth $127 billion in just a few years!)
“Well, the team at Extreme Opportunities: Future of Entertainment have uncovered a stock that I see as a pretty exciting ‘pure play in this rapid-growth market that IPO’d just last year.”
What clues do we get about this one?
“… it’s tiny. $907 million market cap, to be precise….
“… targeting 827x potential business growth. Management estimates that this stock’s total addressable market could grow to $30.6 billion. By contrast, this stock brought in just $37 million in revenue in the last year. A potential total addressable market that’s estimated at 827x the size of the current business? …
“Never recommended at The Motley Fool before.”
And this is still technically not “recommended,” I guess — they pitch it as hugely exciting with that 827X potential growth, but also say that it is just a “radar stock,” something they’re watching but haven’t formally recommended yet (and might never). And they do imply that this is risky, because “this is an early-stage, aggressive company.”
So what’s the story? Well, you’d have go back all the way to last Wednesday morning to find it at a $907 million market cap, but the Thinkolator confirms this is our old favorite GAN ltd. (GAN), the gambling technology company. And yes, as further confirmation, GAN’s investor presentation does estimate their “Total addressable market at maturity” as being $30.6 billion (roughly 40% B2B iGaming, their most profitable business, and 60% B2B Sports Gambling, fueled largely by their acquisition of Coolbet).
That’s Gross Operator Revenue, NOT GAN’s forecasted potential revenue or the size of their potential market — you can think of Gross Operator Revenue as being the total amount of betting that’s happening through the platforms run by GAN’s customers, touching GAN’s account management system or their sports betting platform or whatever other parts of the technology stack that client uses (kind of like Gross Merchandise Volume for Shopify’s customers/vendors, for example). The total revenue that actually comes onto GAN’s income statement is far smaller than the Gross Operator Revenue of its clients — so for the first three quarters of 2020 GAN’s clients had Gross Operator Revenue of $413 million, very strong growth from $195 million in the same period of 2019… but GAN’s actual revenue, if you exclude a 2019 patent payment they received, was up about 65% from $15.3 million a year ago to $26.3 million in 2020. Still good, but the total addressable market for a gaming technology company like this is not “all the money people are going to gamble” — it’s the fraction of that amount that casinos who want to outsource player account management, online games, or sports book management will spend on technology.
The business is scalable to a large degree, they do get the most meaningful portion of their revenue from a revenue share on real money iGaming and a smaller portion from a sports gambling revenue share with some clients, but there’s also some real lumpiness — both revenue from and costs associated with ramping up technical support for new clients and rolling out new services can bounce around a bit… this year the big event so far is the Michigan launch, the latest big state addition to full online internet gambling and sports betting, with the first legal bets taken about two weeks ago with three different GAN clients as operators.
It’s still a small company, and losing or gaining a client or a state still has a meaningful impact on the revenues in any given year, but it’s important to be aware that the potential market for GAN is a fractional revenue share of the potential market for online gambling in general.
So get that idea of 827X growth out of your head right now, please.
It’s OK, we can wait a minute.
Adjusted yet? OK, we can proceed…
I really like GAN, and have added to my holdings a couple times since I first bought shares a little while after it was teased as a gambling “hidden SaaS” name by one of the Stansberry newsletters, a tease which started about a year ago (and has been updated and revised and relaunched, they were teasing it again in mid-January and I posted an update look at those stocks here). Shares surged when they shifted their listing from London to New York (that’s the “IPO last year” bit), then surged further when Dave Portnoy fell in love with them and they got some day trader excitement flowing over the summer, in the wake of bigger name-brand gambling stocks like DraftKings (DKNG) and Penn National (PENN), and then crashed back down a bit when everyone freaked out about losing part of FanDuel’s business (though that was neither a surprise nor a real crisis), so it’s been a wild year… and GAN has now grown to become a meaningful position for me, so I do watch it pretty closely. This is part of what I wrote to the Irregulars a couple weeks ago, when Michigan was just about to (finally) go live: