Summary
- NeoGames S.A. went public in November 2020, raising around $94 million in a U.S. IPO.
- The firm provides a range of iGaming, iLottery and sports betting technologies worldwide.
- While NeoGames S.A. is beginning to see the benefits of its Aspire Global transformational acquisition, I'm on Hold until we see positive outcomes in the firm's financial results.
A Quick Take On NeoGames
NeoGames S.A. ( NGMS ) went public in November 2020, raising $94 million in gross proceeds from an IPO priced at $17.00 per share.
The firm provides a suite of lottery management software solutions to national and state-regulated lotteries and iGaming solutions.
Management will need to show its ability to execute on the Aspire integration and resulting cross-selling opportunities.
Until it does so and we see material organic growth rates, I’m on Hold for NGMS.
NeoGames Overview
Luxembourg-based NeoGames S.A. was founded to develop iLottery management software and games for state lotteries and other lottery operators as well as iGaming software for private operators.
Management is headed by Chief Executive Officer Mr. Moti Malul, who has been with the firm since 2014 and was previously at predecessor firm Aspire in various roles for five years.
The company’s primary offerings include the following:
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Regulation and compliance
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Payment processing
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Risk management
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Player relationship management
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Player value optimization
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Game studio.
The firm pursues long-term contracts with national and state lotteries and other lottery operators.
The firm provides four areas of services to customers: marketing operations, player operations, technology operations and business operations.
NeoGames’ Market & Competition
According to a 2020 market research report , the global lottery market was an estimated $321 billion in 2019 and is expected to reach nearly $393 billion by 2026.
This represents a forecast CAGR of 2.9% from 2021 to 2026.
The main drivers for this expected growth are increased Internet access, growing use of mobile devices, improved entertainment experiences and younger demographics playing lottery games more frequently.
Also, within the lottery industry, management says the global iLottery segment "has emerged as a fast-growing segment...with GGR increasing at a CAGR of 24.0% between 2003 and 2019, according to H2GC."
Major competitive or other industry participants include:
NeoGames’ Recent Financial Performance
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Total revenue by quarter has risen sharply due to the completion of the firm’s acquisition of Aspire Global at the end of Q2 2022:
Total Revenue (Seeking Alpha)
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Selling, G&A expenses as a percentage of total revenue by quarter have risen sharply in recent quarters:
Selling, G&A % Of Revenue (Seeking Alpha)
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Operating income by quarter has turned negative recently:
Operating Income (Seeking Alpha)
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Earnings per share (Diluted) have remained negative in the past four quarters:
Earnings Per Share (Seeking Alpha)
(All data in the above charts is GAAP.)
In the past 12 months, NGMS’s stock price has fallen 31.3% vs. that of the Nasdaq 100 Index’s drop of 9.7%, as the chart indicates below:
52-Week Stock Price Comparison (Seeking Alpha)
Valuation And Other Metrics For NeoGames
Below is a table of relevant capitalization and valuation figures for the company:
Measure [TTM] | Amount |
Enterprise Value / Sales | 4.8 |
Enterprise Value / EBITDA | 53.3 |
Price / Sales | 3.8 |
Revenue Growth Rate | 108.2% |
Net Income Margin | -20.0% |
GAAP EBITDA % | 9.0% |
Market Capitalization | $380,830,304 |
Enterprise Value | $520,987,296 |
Operating Cash Flow | $14,911,000 |
Earnings Per Share (Fully Diluted) | -$0.80 |
(Source - Seeking Alpha.)
Commentary On NeoGames
In its last earnings call ( Source - Seeking Alpha ), covering Q3 2022’s results, management highlighted the value it sees in being able to offer "integrated end-to-end iLottery, iGaming and Sportsbetting solutions" to global gaming markets.
The firm also noted positive developments in various U.S. legislative initiatives.
In addition, management continues to integrate the NeoGames and Aspire Global platforms.
The company acquired Aspire Global in a $480 million deal earlier in 2022 that promises to make the company an important player in the Latin American iGaming market.
As to its financial results, total revenue rose 14.1% excluding the Aspire Global contribution.
NPI revenue rose 34.4% year-over-year, while adjusted EBITDA increased 135%.
GAAP operating losses increased sequentially and year-over-year, and earnings per share remained negative.
For the balance sheet , the firm finished the quarter with $60.6 million in cash, equivalents and short-term investments and $192.9 million in long-term debt.
Looking ahead, management tightened its full-year 2022 guidance range and expects revenue of $202.5 million at the midpoint of the range.
Regarding valuation, the market is valuing the company at an Enterprise Value / Revenue multiple of 4.8x on 108.2% revenue growth, with most of that growth inorganic.
The primary risk to the company’s outlook is the prospect of a global macroeconomic downturn in 2023, reducing discretionary spending by consumers in the process.
A potential upside catalyst to NeoGames S.A. stock could include its continued integration of Aspire improving its ability to win iLottery contracts
But, management will need to show its ability to execute on the Aspire integration and resulting cross-selling opportunities.
Until it does so and we see material organic growth rates, I’m Neutral on NeoGames S.A.
For further details see:
NeoGames Continues Aspire Global Integration Efforts