Description

Bet-at-home down 90%+ over last 2.5yrs given regulatory changes and is now probably too small for most readers. However, net cash (incl. all contingent liabilities) is now above market cap. Company is working on a turnaround that should increase profitability in 2024/25 and lead to share price going up by 100%+. Downside limited given cash in bank.

The company

Bet-at-home is an online sports betting operator. They got 5.6m registered users. The company is based in Austria and Malta with smaller offices in Germany and Gibraltar.

Bet-at-home operates in Germany (44% of stakes as per H1’23), Austria and rest of Western Europe (45%) and Eastern Europe (10%). I estimate Austria at c. 35%, Switzerland at c. 5-10%, and Eastern Europe is Croatia, Slovakia etc. Germany and Austria together represent c. 80% of stakes. 90%+ of the revenue is online sports betting which is less risky than online casino from a regulatory standpoint. Online casino used to be 50%+ of the mix but given regulation is now <10%.

The company was founded in 1999. From 2005 to 2018, the company was very successful in gaining customers in mainly German speaking countries, and growing revenue while maintaining 30% EBITDA margins. They were developing their own technology and product and had significant brand awareness in local markets. However, recent regulation in Austria and Germany in 2020-22 put a lot of pressure on the company. Since then, the company has tried to right-size business to improve profitability. They have been outsourcing all technology/product to a software supplier and have laid off 2/3 of employees. The company is now mainly focused on customer experience and marketing, as well as developing product together with software provider, EveryMatrix.

Market and regulation

Germany is the company’s biggest market. Germany introduced a new gambling framework with a new law in 2021. Bet-at-home has a license to offer online sports betting and virtual slot machines. The company operates from bet-at-home.de. The regulation is quite punitive with various limitations on online slots (1 spin per 5 seconds, 1 EUR stake limit), EUR 1000 per month deposit limit on sports betting across operators etc. This has led to customers going to black market, which is estimated at c. 50% of total gambling. The government is getting more aggressive in attacking the black market which should be a tailwind for the legal operators. CVC-owned Tipico is the main operator in the German market, followed by Bwin. Bet-at-home is number 3 in terms of brand awareness, although probably only #4 or 5 in terms of revenue.

 Austria is the second biggest market for Bet-at-home. Austria also went through regulation which was very painful for the company. The company pulled out of Austria with online slots offering and is now only offering online sports betting. Admiral and bwin are the largest. Tipico also there.

Thesis

• Net cash. The stock seems dislocated with stock trading below net cash. Cash as of Q3 was 35.3m. Even when excluding customer balances of 4m and potential liabilities related to customer claims of 6m, cash is still 25m vs. market cap of 21m. The company is expected to produce cash over coming years
• Improving topline. After 3yrs of painful regulatory changes, the company is now in a more stable environment with online sports betting expected to grow high single digit. The German regulator is trying to shut down black market operators which should help regulated operators
  • The company increased marketing spend over the past 6months which is not visible in Q3 revenue numbers
  • Q3 also suffered from bad sports margins given unlucky sports outcomes (fan favorites winning) – this should reverse
  • The Euro cup in 2024 might provide an additional boost to revenue
  • The company also has a significant cross selling opportunity – 90%+ is sports betting. Currently, they are focusing on improving sports betting, but likely their attention will move to online slots (and maybe casino) and cross selling at some point; this is how many operators make most of their money
• Cost cutting will be more visible in 2024
  • The company has been outsourcing all of its technology development to EveryMatrix, a leading software provider in gaming
  • They have reduced headcount by 2/3
  • In H2 2023, they used a lot of money on marketing which will normalize 
• Potential acquisition: Some chance that Betclic who owns 54% could buy remaining Bet-at-home shares given low share price
• Management will likely start interacting with market again once turnaround is further along and once they have further clarity on customer claims - newish CEO is very focused on the business right now and communication with market is limited  

Risks

• Legacy customer claims - should be limited to c. 6m
  • Part of the reason the stock has been weak is the customer claims that Bet-at-home faces. Customers that have lost money before the recent regulatory changes, especially in Austria but also in Germany, have argued that the transaction between the company and the customer is not legal because the company didn’t operate legally in the country
  • The company has been working through these claims over the last two years. The company thinks they can accurately estimate the liability, as company has seen slowdown in new claims coming in 
  • Currently EUR 1.9m claims in legal proceeding in Germany (total of 23 claims) and 4.3m in Austria (total of 7 claims)
  • Claims are against Bet-at-home entertainment that is now being liquidated to reduce risk
• Ownership. The company is owned 54% by Betclic, that is in turn owned by FL entertainment. Could be that interest of Betclic is different than public shareholders, although not clear why
• Additional regulation in Germany or Austria or increased competition – no clear signs of these currently

Catalyst

• Company providing additional communication on customer claims and turnaround
• Company improving profitability over 2024
• Company handing back some of cash