NeoGames (NASDAQ:NGMS) stock is soaring Thursday after the online lottery operator delivered fourth-quarter results and 2021 guidance that topped consensus estimates in its first earnings report as a public company.
Late Wednesday, the Israeli company said it posted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $9 million on revenue of $18.5 million in the final three months of 2020. That’s up from $3.5 million of EBITDA on sales of $9.9 million a year earlier. Wall Street expected EBITDA of $5.3 million on turnover of $12 million.
The iLottery operator forecast 2021 revenue of $65 million to $69 million, slightly ahead of consensus estimates.
“While we had sensed that market iLottery sales outpaced expectations into the print, we are highly impressed by the magnitude of the beat reported and believe that beating Consensus in the company’s inaugural earnings should lend further credibility for the company’s management team,” said Stifel analyst Steven Wieczynski in a note to clients.
He rates NeoGames a “buy” with a $40 price target. That implies upside of 33 percent from the March 10 close.
While online lottery — NeoGames’ primary business — doesn’t generate the hype that iGaming and sports wagering do, it is beholden to many of the same factors. That includes increasing state-level legalization.
Currently, NeoGames is the dominant internet lottery operator in the US, with management noting it controls about 70 percent of that market. The company doesn’t disclose state-by-state results. But Wieczynski believes Michigan contributed the bulk of the operator’s outperformance in the fourth quarter. The operator entered Virginia last July.
“We were impressed with NGMS’s ability to punch above its weight class from a gross gaming revenue (GGR) perspective while also holding a leading share of operating contracts, and though we think much of this revenue outperformance was driven by Michigan, we expect other states to follow along with a similar growth trajectory as they mature,” he said.
Outside the US, NeoGames has online lottery contracts in Austria, Canada, and the Czech Republic, among others. The impact from the Austria agreement isn’t reflected in fourth-quarter results because it was announced last month.
Many states are strapped for cash in the wake of the coronavirus pandemic, prompting renewed focus on alternative revenue streams. That’s been a boon for online casino and sportsbook operators. But iLottery is still waiting on the trickle-down effect.
As Wieczynski points out, state-level acceleration is slower than investors expected, perhaps explaining why NeoGames stock is off 21.08 percent year-to-date.
The analyst said the company’s share of the US iLottery market will likely drift lower as more states join the party. But he’s “confident in NGMS’s ability to win a meaningful share of new contracts.”