Genius Sports Analysts Highlight Betting Technology Revenue, Long-Term Media Opportunity, NBA Partnership, & More

Needham analyst Bernie McTernan reiterates Genius Sports Ltd GENI with a Buy and a $7 price target.

GENI grew revenue by ~25% Y/Y in 4Q22. The company rode the wave of growth in the U.S. OSB market, with the U.S. handle up 40% and, significantly, the in-play betting handle and GGR growing 50% and 60%, respectively. 

That said, the guidance calls for 15% revenue growth in FY23, modestly below the analyst's expectations of +19%.

Betting technology revenue will likely be the primary driver of growth and came ahead of the analyst's expectations, but the guide for Media revenue missed expectations. However, this appears to primarily be a complex comparison function in 1H, with 2H returning to strong, nearly 30% growth. 

Despite the lower guide for FY23, the analyst continues to be bullish on the long-term Media opportunity as a measurable way for sportsbooks to find customers.

The 4Q22 adjusted EBITDA and FY23 guidance were modestly ahead of the analyst's expectations. GENI continues to show discipline in managing opex, expecting non-GAAP opex to be down slightly in FY23 vs. FY22. 

The gross margin guidance was also ahead of the analyst's expectations on lower rights fees and media COGS. 

The day before earnings, GENI announced an expanded partnership with the NBA that leverages Second Spectrum to create a next-gen platform. 

The analyst believes it is another example of GENI being a strong and differentiated tech partner to the leagues with their Watch and Bet deal with the NFL another example of this. 

Ultimately being an excellent partner to the leagues should help in future data rights negotiations and create a better customer experience making the leagues more engaging for fans.

Credit Suisse analyst Benjamin Chaiken maintains an Outperform and lowers the price target from $10 to $8.

The implied FY23 EBITDA flow-through vs. FY22 suggests lower-than-expected operating leverage prompting the analyst to reduce FY24/FY25 EBITDA estimates. Based purely on guidance, the revenue dropdown to EBITDA is 50% for FY23 vs. FY22. 

However, the analyst thinks FX is a tailwind to the formula (as FX impacts revenue more than EBITDA), implicitly making the revenue dropdown look more intense. 

The appealing part of the story is the ability to leverage "fixed costs," but it feels as if data rights are eating into the GENI's ability to generate operating leverage. 

GENI is still targeting a 50%+ flow-through moving forward, it's just hard for the analyst to get comfortable with that in the context of the FY23 guide, which suggests otherwise. 

The headline guidance for media is likely a surprise but less concerning than the above flow-through.

Price Action: GENI shares traded lower by 6.69% at $4.26 on the last check Monday.