Is this a buying opportunity for investors?
Sportradar (NASDAQ:SRAD) stock was plummeting on Wednesday, down roughly 10% after the firm posted third quarter earnings that fell short of expectations.
However, the Swiss sports betting data and technology company did raise its outlook for the rest of the fiscal year.
- Revenue: €292 million, up 14% year-over-year. This missed estimates of €295 million in revenue.
- Net income or profit: €22.5 million, down 39% year-over-year.
- Earnings: €0.07 per share, down from €0.11 per share. This fell short of estimates of €0.08 per share.
The company has two major revenue streams – Betting Technology and Solutions and Sports Content, Technology & Services. The former, where it provides betting data and technology for DraftKings, FanDuel, BetMGM, Caesars, Bet365, among others, saw revenue rise 11% to €232 million. The latter saw revenue increase 31% to €59 million.
Profits, however, were down, as Sportradar had higher expenses related to paying for sports content and data rights related to recent deals with ATP and Major League Baseball. The company also had higher expenses for technology and marketing and media services revenue. Earnings were also impacted by lower foreign currency gains related to currency fluctuations associated with U.S. sports rights.
However, adjusted EBITDA increased 29% to €85 million and the adjusted EBITDA margin expanded to a record 29.0%, which is 240 basis points higher, year-over-year.
“We delivered another quarter of strong topline growth and increasing flow through, including record EBITDA margins and substantial cash flow generation,” Carsten Koerl, Sportradar CEO, said. “The results reflect our sustained operating performance and the durability of our growth strategy. Our continued momentum is driven by our premium content and product portfolio, and leading technology and AI, which is enabling us to consistently drive above market growth and deliver increasing value for our clients and partners.”
IMG Arena acquisition
Sportradar also just closed on its acquisition of rival IMG ARENA, which brings some 70 rightsholders and about 38,000 data events and 29,000 streaming events across 14 sports to Sportradar.
The company expects the acquisition to accelerate revenue and be accretive to EBITDA margins and free cash flow, while bolstering its competitive position.
The acquisition prompted Sportradar to raise its guidance for fiscal 2025. It is now calling for revenue of €1.290 million, which would be 17% growth. Further, adjusted EBITDA is expected to be €290 million, which would be 30% growth. Further, the adjusted EBITDA margin is projected to expand by 240 basis-points, while the free cash flow conversion rate is expected to be above the 2024 level of 53%.
Why were investors selling?
The selloff was related in large part to the earnings miss but it may have even more to do with Sportradar’s high valuation trading at 66 times earnings.
Sportradar stock has been a stellar performer over the years, and it is up about 39% YTD.
It pretty much controls the space in a duopoly with Genius Sports, with a wide competitive moat from all its exclusive sports rights.
It’s in a great position to be a consistent, long-term grower, but right now it is trading at a high valuation due to its success and market share.
Analysts have set a median price target of roughly $34 per share, which suggests 39% upside. Investors should put this stock on their radar and look for a good opportunity to get in, perhaps at a lower valuation.
