Reset Your Message with Wall Street and Take a Smarter, More Proactive Approach to Your IR Program
Rarely have we ever seen investor sentiment within a sector shift more quickly than the iGaming and online sports betting stocks did since late 2021. Since that time, an equal-weighted basket of online gaming stocks is down over 50%, or nearly triple the S&P 500. Further, FY’23 EV/EBITDA multiples have compressed 2-4x turns, with Operators (8x from 11x one year ago) and Suppliers (6-7x from 8-9x one year ago) both falling dramatically.
These starkly different capital market conditions demand a refreshed approach to how gaming companies communicate their story, engage with Wall Street and differentiate themselves to a buy-side that often struggles to understand all of the different players in this young and growing industry.
Reset Your Message with Wall Street:
- The recession-resistant nature of gambling is underappreciated by investors, in our view. The association of gambling with “discretionary” and “leisure” misses that GGR fell just mid-single-digits in the last economic recession. Companies should seek to emphasize that their story may have more defensive appeal than most investors understand.
- The investor focus from TAM and top-line growth to profitability occurred seemingly overnight in late 2021 and has only been further entrenched in the new inflation/interest rate regime. We’ve seen investors grow frustrated with management teams focusing on the timing of new state launches – which have been slower to materialize than initial expectations. Rather, focus your messaging on execution, profitable growth and the initiatives being taken today to ensure long-term success.
- It has always been our view that churn and player loyalty is not discussed nearly enough at the IR and media level despite large and expensive player acquisition campaigns each year. Marketing costs are increasingly scrutinized, but adding KPIs like active customers, churn, and player loyalty metrics can go a long way toward demonstrating good marketing ROI and assuage investor fears of structurally high marketing expenses.
- Our conversations with generalist investors interested in the space have shown that they often struggle to differentiate the investment thesis and value proposition amongst different suppliers, amongst operators, etc. A greater focus from management on competitive moats, market share, innovation, proprietary technology and data, recurring revenue components, content, etc. is a highly effective tool when competing for capital in a young and fragmented industry.
- Emphasize balance sheet strength. Investors are highly concerned about names that may need to raise money in this interest rate environment, and the equity of undercapitalized companies have been punished accordingly.
Take a Smarter, More Proactive Approach to Your IR Program:
- It is growing increasingly difficult to compete for investor capital when quality Large/Mega-Cap names are down 20-30% off their highs and the prospect of recession is looming. As a result, investor targeting needs to get smarter and more nuanced. What was previously an Aggressive Growth appeal in the Gaming sector has turned into a GARP or even Value play for some names in the space given the sharp selling and multiple compression, and our new targeting with clients reflects that reality.
- You may need to take a more active role in coordinating your own roadshows. With the sell-side model increasingly challenged, we are coordinating roadshows for select clients where there is less analyst support. We have also observed that the institutions willing to take management meetings are quite different than one year ago, and these roadshows are designed to target smaller, special situations firms with more flexibility.
In summary, 2023 is going to be a critical year for the casino and gambling industry. There will be winners and losers, but without a strategically focused IR program to differentiate your story and educate Wall Street, you may miss a tremendous opportunity to rebuild the foundation of your IR program and shareholder base.
About Alpha IR Group:
Alpha IR Group is a full-service investor relations consulting firm that partners with companies to deliver best-in-class investor relations, from strategic insights to daily, tactical execution. Alpha IR offers a range of tailored programs, as well as sophisticated insights and significant experience with activist preparedness, investor day preparation and execution, earnings support, M&A/transaction support, perception studies, and more. The firm’s leaders have over 100 years of combined sell-side, buy-side, investment banking, and IR consulting experience. The firm has offices in Chicago, New York, and Boston. Alpha’s growing staff supports a client base that spans seven industry verticals and represents nearly $100 billion of equity value trading on public exchanges in North America.