Sportradar IPO Analysis: Is The Stock A Buy?

Sportradar Group AG (SRAD)  is a Swiss-based multinational company that provides live sports and betting data, odds solutions, and fraud detection services. Sportradar’s services are used by bookmakers, national and international sports federations, and media companies. The company, which was founded in 2001, has over 1,600 customers in more than 120 countries and is an official partner of the NBA, NHL, MLB, NASCAR, and FIFA.

Sportradar’s business was affected by the global pandemic that disrupted the sports world. However, the company has grown at a stellar pace in the last few years, as sports betting gained traction after the Supreme Court of the United States legalized the industry back in 2018. Sportradar reported an $18 million net profit on $495 million of revenue last year, according to the company’s prospectus filed with the U.S. Securities and Exchange Commission. On Sep. 7, the company announced that it is preparing to go public on the Nasdaq Global Select Market with 19 million Class A ordinary shares and an additional 2.85 million held under options, valued between $25 and $28 per share. The betting data provider will trade under the ticker symbol SRAD.

Outlook for the industry and Sportradar’s market position

Data related to gaming and sports are becoming increasingly important as betting organizations strive to provide more alternatives for gambling, going beyond the traditional model of predicting the result of a game and the final score. This recent trend has given birth to companies that acquire, process, and transmit data to media corporations and betting operators. According to Technavio, the sports betting market is expected to rise to $106.25 billion by 2025, growing at a CAGR of 9.70%. Despite some concerns regarding the increasing health risks in some popular sports and gaming destinations, major sports events are highly unlikely to be canceled in the future as the world has already adapted to the new normal.

Exhibit 1: Sports betting market size

Source: Technavio

The market is projected to be driven by the growing digital presence and the rise of eSports as well. Europe is the largest contributor to eSports betting and continues to be the market leader in online sports betting. With the introduction of smartphones and the advancement of technology, Europe’s gambling and betting presence has grown, and it is now relatively convenient to run and play on gambling industry platforms without a hassle.

The sports betting market in the United States is also rapidly developing. In the United States, sports betting revenue is predicted to reach $2.5 billion in 2021, and rise to $8 billion by 2025. Currently, only bookmakers based in Nevada, Pennsylvania, and New Jersey are licensed to operate online under the legal framework for betting in the United States. However, favorable industry regulations can be expected in the future when the industry goes mainstream.

Sportradar is well-positioned in the rapidly growing sports betting market. The company gathers sports data, and with the help of an algorithm, assists betting companies in setting odds. The company provides software, data, and content to sports leagues, betting operators, and media companies through subscription and revenue share agreements.  One of the key business segments that stands out is its Integrity Services. Sportradar’s security branch, based in London, collaborates with law authorities to keep an eye on any match-fixing or fraudulent activity.

Last August, Sportradar and mobile sports betting giant FanDuel Group announced an extension of their agreement, making Sportradar the preferred data and odds provider for FanDuel through 2028. The company has established a strong foothold in the sports betting market and aims to be valued at $7.8 billion and raise $504 million from the planned initial public offering.

Although Sportradar has done an outstanding job, the sports betting business is a very competitive one in which no single company holds a dominant position. Genius Sports (GENI), which went public in April, is Sportradar’s closest competitor and has entered into a partnership with the NFL. However, Sportradar stands to gain a significant share of the sports betting market because it also has a variety of services that could result in recurring revenue and strong growth. The company reported revenue of $318 million in the first half of 2021, up 42% year over year, a net income of over $20 million, and $67 million in cash from operating activities.

Takeaway

Sportradar Group, in our opinion, is a good pick for growth investors, given its potential to achieve significant growth and profitability in a fast expanding sports betting market. The company is very young from a business maturity perspective, but is already profitable, which speaks volumes about the efficiency of its business model. We believe Sportradar stock will deliver multibagger returns in the long run as the sports betting industry gains traction in both developed and emerging markets.

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