Genius Sports, Sportradar ‘Secular Winners,’ Says Analyst

• Data providers are preferred ways for playing sports betting boom
• Analyst says duopoly status is a long-term catalyst

Two of this year’s best-performing stocks arrive courtesy of companies that don’t run internet or land-based casinos, and they don’t book sports bets.

Proving there’s merit in investing in the business-to-business (B2B) side of the gaming industry, Genius Sports (NYSE: GENI) and Sportradar (NASDAQ: SRAD) are up 18.5% and 69.1%, respectively, year to date. Those gains, particularly Sportradar’s, may imply investors have missed the easy money, but some analysts believe the sports betting data-provider investment thesis has a long runway ahead of it.

We see the sports betting data providers as long-term secular winners. While there may be volatility over short periods of time, we believe they are long-term winners,” wrote Deutsche Bank analyst Steven Pizzella in a report out Monday.

He cited factors such as Genius and Sportradar generating 60% to 70% of sales from growing fixed revenue streams, in-play betting leverage, expanding product portfolios, and limited need to renew expensive data rights deals with sports leagues over the medium term.

Duopoly Status Benefits Genius, Sportradar

On the consumer-facing side of the sports betting industry, an obvious duopoly comprised of DraftKings and FanDuel has formed. A similar situation is at play in the data space with Genius and Sportradar emerging as the leaders.

Genius catalysts include “increased in-play betting, led by GENI’s BetVision product, which should drive higher take rates, revenue, and margins; 3) room to flex the balance sheet (net cash) for further M&A, to expand GENI’s value chain, and for potential capital return,” observes the analyst.

In the current market setting, one of the biggest advantages Genius Sports can offer investors is that it’s not tethered to the consumer-facing side of the sports-wagering industry. Rather, its primary clients are gaming companies that rely on Genius’ real-time data to expand and power their betting menus. That’s relevant at a time when some bettors could scale back wager sizes or reduce their wagering frequency because of volatile equity markets and weakness in the broader economy.

Sportradar Reasonably Valued

Although the stock is up 69.1% year to date, with some analysts arguing it should be valued more like a software name and less like a gaming equity, Sportradar isn’t demanding on valuation, according to Pizzella. In fact, the stock may be attractively valued relative to the long-term growth outlook.

The long-term Sportradar thesis is underpinned by a variety of factors, including “1) one of the strongest growth profiles within our coverage universe, (DBe ~27% 3-year adjusted EBITDA CAGR), 2) a strong balance sheet, in a net cash position, 3) increased operating leverage in the out years, 4) key long-term contracts, locked in for approximately six years on average, 5) increasing wallet share from cross sell and up sell opportunities, and 6) a reasonable valuation, when looked at in terms of SRAD’s growth prospects and comps,” concludes Pizzella.