Spruce Point Capital Management, a money manager that specializes in little selling, has published a young report in which it skewers sports betting data provider Genius Sports (NYSE:GENI). It says the companionship could endure perimeter pressure sensation and important divvy up cost declines.
On tidings of a data sharing understanding with DraftKings (NASDAQ:DKNG) and on a 24-hour interval of broad-based strength among gaming equities, shares of Genius are higher by to a greater extent than quaternary percent inward midday trading. However, those factors aren’t preventing Ben Axler’s Spruce Point from establishing a unforesightful berth inwards Genius and taking the freshly public companionship to task.
In a write up titled Mr. Irrelevant… It Doesn’t Take A Genius, the research steadfastly says Genius caudex could go down 60 percent to 80 percent, implying prices of $3.25 to $6.50. The information provider is just iv months removed from becoming a stand-alone publicly traded entity.
While the market’s stream vista reflects the ontogeny prospects of the sports betting industry, in reality, we trust Genius is just now another intermediary that provides similar data to its competitors, and testament likely go bad to take advantage on wider industry growth,” said Spruce Point in the report.
The money manager goes on to say Genius “has an inferior business sector model” that puts it at the mercy of the major sports leagues and testament lede to crimped margins.
Spruce Point Sees Bleak Near-Term Outlook
Like so many fresh public companies, Genius Sports is subject to a lock-up period inwards which insiders cannot sell shares.
As Spruce Point notes, that confinement ends next week, and a moving ridge of insider marketing could be unleashed. Additionally, the NFL, which owns a post inwards Genius, could follow a seller of the buy in as well, potentially creating monolithic headwinds for the already downtrodden shares this month. Genius is depress by almost 10 percent year-to-date and shake off 15.64 percent o'er the past tense month.
“We await significant near-term merchandising pressure sensation on the portion out price. We estimate 35 one thousand thousand insider shares testament suit unlocked next hebdomad after a 60-day full stop followers the June 21st equity offering,” said Spruce Point. “The National Football League warrants are exercisable through next week, and 9.2 trillion public warrants can be exercised on Aug 18.”
In April, the NFL and Genius reached a six-year information accord inward which the conference received 22.5 one thousand thousand equity warrants at a centime apiece. At the time, that equity was valued at $446.6 million. While the business deal was viewed as a coup for Genius because it beat come out challenger Sportradar, Spruce Point says arrangements similar this have in time to pay off for data providers.
“Genius pays considerable fees for its sports information rights, ~$120 meg per yr for the NFL, which feature in time to generate material profits for Genius or Sportradar, the yesteryear owners of the NFL rights who did non chance the electric current cost economical,” according to the shortsighted seller. “
The research steadfast adds Genius management may have got overstated the opportunity localise by saying its amount addressable market is $60 billion. Spruce Point says roughly 30 percent of that enter is pre-game betting, where there’s essentially no more need for or time value inwards the data Genius and its competitors provide.
“At the destruction of the day, Genius is an intermediary, or middleman, that provides data from sports leagues to sportsbooks and, as a result, will potential follow guinea pig to margin pressure from both sides, as considerably as potential lay on the line of disintermediation,” said Spruce Point.
Another Post-SPAC Short Report
Genius Sports became a in public traded steadfastly next a merger with a special design acquisition troupe (SPAC). De-SPACed companies get reputations for struggling comparative to firms opting for traditional IPOs.
Compounding those woes this twelvemonth inward the gaming blank is the fact that, including the Spruce Point assault on Genius, at to the lowest degree deuce-ace de-SPACed operators have got been smasher with short reports. That lump got rolling when at to the lowest degree deuce-ace unforesightful sellers published bearish research on wandering games provider Skillz (NYSE:SKLZ) earliest this year and it continued inwards June when activistic Paul von Hindenburg Research accused DraftKings of having ties to money laundering and organised crime.
Speaking of DraftKings, Spruce Point believes that manipulator and other consumer-focused firms are best ideas than Genius for investors sounding to capitalise on the sports wagering boom. Add to that, the unforesightful seller says Genius inventory is richly valued.
“With a market capitalisation of o'er $3 billion, implying a 2021 revenue multiple of approximately 13x, Spruce Point believes Genius’ valuation is beyond reason. Genius trades at a insurance premium to most of its online gaming manufacture peers based on 2021E & 2022E revenue multiples, despite having the second- lowest 2022E revenue ontogenesis rate,” according to Spruce Point.