Posted on: October 15, 2021, 10:24h.
Last updated on: October 15, 2021, 10:59h.
GAN Ltd. (NASDAQ:GAN) stock is soaring Friday after the gaming technology provider issued bullish revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) guidance.
Up more than four percent in midday trading on volume that’s already eclipsed the daily average, GAN is one of today’s best-performing gaming equities. At a virtual investor event, the company forecast 2023 sales of $225 million to $230 million, while noting it expects to get revenue of at least $500 million by 2026. It added that it’s targeting long-term adjusted EBITDA margins of 30 percent to 35 percent. That commentary is propping up the moribund shares and sparking some renewed enthusiasm among analysts.
Net, shares just became ‘cheaper,’ driven by company-specific drivers/catalysts, as well as continued visible online gaming total addressable market (TAM) growth, in our view,” says B. Riley Financial analyst David Bain.
Bain reiterates a “buy” rating on GAN stock with a $26 price target, which implies upside of 73 percent from current levels.
New Markets Could Power GAN
Since its initial public offering (IPO) in May 2020, much of the thesis around GAN stock revolves around the software maker’s ability to garner new business in the fast-growing iGaming and regulated sports wagering arenas. It appears GAN is answering that bell.
“We believe better than expected revenue guidance is driven by: 1) Organic B2B growth (new markets, deals); 2) New products, including GAN Sports and its expanding Super RGS; and 3) International B2C growth,” said Bain.
The company’s revenue guidance coincides with a new business announcement. GAN revealed it’s signing a contract with Station Casinos parent Red Rock Resorts “to build and deploy the infrastructure for Station’s ‘STN Sports’ online sports platform, mobile applications, and retail Over-the-Counter and Kiosk-based sports betting throughout Nevada.”
Financial terms of that agreement weren’t disclosed, but GAN describes it as a “material relationship.” Station’s operates 19 gaming venues in Nevada.
GAN Stock Somewhat Cheaper
Even with today’s rally, GAN stock isn’t expensive — noteworthy, given that the new generation of gaming technology names are positioning themselves as software stocks and looking to be valued as such.
“We believe calendar year 2023E top-line guide includes business growth at the same or higher margins than our current 19% margin estimate, inferring CY23E EBITDA of $45.1M at the mid-point. Based on mid-point guidance, GAN trades for CY23E 2.2x EV/Sales and based on a 19% CY23E EBITDA margin, 11.6x enterprise value/EBITDA. This compares to currently modeled revenue and EBITDA which indicates CY23E EV/Sales of 2.9x and EV/EBITDA of 14.9x,” adds B. Riley’s Bain.
Some analysts believe that a recent flurry of consolidation activity in the iGaming and sports betting industry could spotlight the value opportunity with GAN. They add that the company will derive benefit from online casino launches in new markets, including Ontario, Canada, which alone could be a $5 billion market.