GAN - Diamond in the rough?

GAN is a B2B SAAS company that helps brick-and-mortar casinos offer online casinos (called igaming) and online sports betting (OSB). They also offer simulated gaming offerings that do not involve real money. You can see the following link slide 6 to get an idea of what they offer to these companies. I can’t say I fully understand the details.

https://investors.gan.com/download/companies/270140a/Present…

Sports betting has literally taken off once the supreme court allowed states to offer it. NJ’s tax revenue has grown by huge amounts in the last 2 years once they allowed it. PA, OR, WV, and a few other states allow it and are seeing good revenue gains. Only 8.4% of the population have access to igaming and 24% have OSB according to a presentation from Draftkings. VA, and MI just allowed it. Several states are expected to follow suit - NY wants to be the state that makes the largest tax revenue from this. TX is talking about it.

GAN thinks that igaming and OSB will become a $30B TAM industry. Their take rate is only 5-6% of this. Their take rate on the simulated gaming is 30% but that is expected to be a much smaller TAM. Their B2B offerings are good for igaming. This year they have acquired Coolbets which is a B2C company active in Europe and some LATAM countries. They offer an online sportsbook and so this rounds out their offerings OSB. They have said that in US they will be strictly a B2B online igaming and OSB company. They will not compete with B2C companies like Draft kings, Fan Duel, Penn, and all the other brick-and-mortar casinos like Wynn, PARC, Churchhill downs etc. Many of these like Fanduel, Penn, PARC, Cordish, Churchill are their customers. Coolbets allows them to increase their take rate in OSB from 5-6% to 15-20%.

In 2020 the combined company (GAN and Coolbets) is expected to do $65M in rev. The combined company is expected to grow its rev by 50% in 2021. So, essentially you have a company with a NTM PS of 9 growing at 50%. With the tailwinds from OSB and igaming they should grow at 40% till 2025 I would assume. Over the last 2 years, FanDuel accounted for 40%+ of their rev which is a dangerous sign. But this is expected to decrease with the Coolbets acquisition and FanDuel’s decision to move their OSB business away from GAN. They just signed a 10y deal with Wynn in MI. So, while there is always a danger that these casinos may take this business inhouse I feel that this is less of an issue with brick-and-mortar casinos. Wynn uses their ibridge patent which combines online rewards with in-person rewards. This is something that online-only players like Draftkings cannot offer.

I recently took a 4% position. The stock has fallen since then. But because of the tailwinds, I am willing to see how this plays out. The company reports on 3/25. Definitely should be interesting to see what they did. As always please do your own DD. This is not a recommendation to buy.

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