Genius Sports shares crash 20% as Q4 net loss reaches $128m

Stock in Genius Sports has plummeted after the sports data specialist missed Q4 earnings per share guidance by some $0.52. 

Topline numbers

Q4 2022 revenue increased by 25.4% to $105.3m. The majority was provided by the firm’s Betting, Technology Content & Services division:

Adjusted EBITDA for Q4 climbed by 121.3% to $2.67m, up from a $12.5m loss in the same period of last year, on an EBITDA margin of 2.5%.

Net loss, however, worsened by 139.7% to negative $127.7m, which Genius said was primarily driven by a loss on foreign currency conversions.

For the full-year 2022 period, net loss came in at $181.6m, a 69% improvement on the $592.8m net loss accrued in the same period of 2021.

The reduction was driven by shrinking stock-based compensation, as well as careful management of operating expenses and revenue growth compared to the prior year.

Annual revenue reached $341m amid a rise of 30%, with the strongest growth witnessed in Genius’ Media Technology, Content & Services segment:

Full-year Adjusted EBITDA hit $15.8m, displaying near quadruple-digit growth on last year’s figure of $1.6m. Again, management attributed the improvement to revenue growth, diversified revenue mix and “disciplined” cost control.

Genius ended the year with a closing cash balance of $159m, above the previously guided range of between $140m and $150m.

“The group had $159m of cash in December 2022, implying just over a year of cover at previous levels of losses,” said Regulus Partners analyst Paul Leyland. “Elusive cash flow profitability is therefore becoming a requirement, rather than an aspiration, in our view.”

The supplier reported Q4 EPS of -$0.63, compared to an analyst consensus of -$0.11, much to the dismay of shareholders.

News nugget

Focus inevitably turned to the US, where Genius is listed. US revenue more than doubled year-on-year, driven by market liberalisation and a 60% annual increase in in-play GGR.

“Keep in mind, the US is still a relatively new market within our global business,” said Genius CEO Mark Locke. “We expect this region will continue to be a long-term driver of significant growth, particularly as our losses continue to narrow year over year.”

The data specialist expects to reach profitability in the US at some point in 2024.

In Q4 specifically, online sports betting handle increased by 40% year-on-year, again driven by new state launches throughout 2022.

“As a reminder, our rev share contracts with US sportsbooks means every new state launch will result in an immediate revenue uplift for Genius with little additional cost,” said Locke.

“Growth in overall betting volume will continue to drive our profitability for years to come,” he added.

Leyland of Regulus Partners said Genius had successfully positioned itself into the burgeoning US market with these results.

“To a large extent Genius has ridden the wave of US sports betting growth, which should continue to provide group momentum going forward. However, the key to revenue scale and profitability remains the more effective exploitation of sports rights, in our view,” he added.

On that topic, Genius subsidiary Second Spectrum signed a multi-year extension to its partnership with the NBA only yesterday.

Despite an operational focus on the US, 68% of Genius revenue is still generated from customers outside of the US, in more mature markets like Europe and the UK.

Best quote

Locke said the firm’s Second Spectrum technology was the sports equivalent of ChatGPT.

“Our technology enables machines to autonomously understand sports at a level far beyond even the best pundit or commentator.”

Best question

Analysts agreed that guidance (see below) came in on the cautious side.

“The business is in a bigger and better performing place than it was 14 months ago, so why reiterate those same underlying assumptions when the business has outperformed in each of the last four quarters?” asked Craig-Hallum analyst Ryan Sigdahl.

“I guess the first thing to say is that the underlying assumptions haven’t changed,” said Genius CFO Nick Taylor. “We’re very pleased with our 2022 performance, we’re very pleased to hit and exceed, and we’ll be looking to hit and exceed what we set out for 2023.”

When asked why Genius had chosen to provide a solitary figure for guidance instead of an estimated range, Taylor replied: “We didn’t give a range last year. We’re very precise in our forecasting.”

Current trading and outlook

Genius expects to generate group revenue of approximately $391m in full-year 2023 alongside Adjusted EBITDA of around $41m, due to continued revenue growth and a relatively fixed cost base.

The company also expects to generate positive free cash flow in the second half of this year.

“We are comfortable achieving our 2023 forecasts without the need for any new rights deals, the opening of any geographical markets, M&A, or any other exceptional factor,” said Locke.

Without new rights deals, however, Regulus Partners is concerned that Genius might pull a hamstring on its way down the path to profitability.

“How to profitably engage mass market betting customers is perhaps the biggest single product and UX question facing betting operators going forward and it is likely that sports rights holders will hold at least some of the keys (which need to be unlocked to make growing rights costs sustainable)” wrote Leyland.

“Herein lies a difficulty: while Genius Sports is on the right strategic path, in our view, the $41m spent last year on R&D needs to pay rapid revenue dividends or face being cut in an operationally necessary but ultimately self-defeating path to profitability,” he concluded.