Podcast Summary
Swedish company Evolution AB is a high-quality investment opportunity with strong growth potential: Evolution AB, a Swedish live casino games company, has seen compounded growth of over 60% per year, making it an attractive long-term investment due to the global shift from land-based to online casinos, strong management team, recent acquisitions, and regulatory tailwinds.
Evolution AB, a Swedish company specializing in live casino games, is a high-quality investment opportunity with strong growth potential. With the global shift from land-based to online casinos, Evolution is capitalizing on this trend and has seen compounded growth of over 60% per year over the past five years. The company's business model, management team, and recent acquisitions, along with the regulatory tailwinds in the industry, make it an attractive investment for long-term growth. Kyle Grieve and Clay Fink, the hosts of The Investors Podcast, both own shares in the company and plan to hold them for the long term. However, it's important to note that this is not a buy or sell recommendation, and investors should do their own research before making any investment decisions. Additionally, the hosts of the podcast will be hosting events during the Berkshire Hathaway meeting in Omaha for their TIP mastermind community members, including a rare opportunity to spend an evening with them and elite investors.
Investigating a Company's Business Model: Kyle's Approach to Discovering Evolution: Thorough research involves reaching out to experts, utilizing resources, and directly contacting companies for information to understand a business model.
Successful investing often involves a thorough research process, which can include reaching out to experts, utilizing various resources, and directly contacting companies for information. Kyle, a dedicated investor, shared his experience of discovering the Swedish company Evolution and the extensive research he conducted to understand its business model. He initially learned about Evolution from Chris Mayer's filings and was intrigued by its impressive numbers. Kyle reached out to Chris and other knowledgeable individuals in the investing community for insights, and also utilized resources like gambling regulations and analyst reports to gain a deeper understanding of the company's market and competitors. Evolution's impressive disclosures and website information were also valuable resources. Ultimately, Kyle was drawn to Evolution due to its unique business model as an online casino operator, which offered a more efficient and cost-effective approach compared to traditional casino businesses. The growing market for online gambling, as evidenced by New Jersey's regulations and high growth rates, further solidified his interest in Evolution.
Evolution Gaming's Two Main Segments: RNG Games and Online Live Casino: Evolution Gaming focuses on its online live casino segment, which is innovative, engaging, and experiencing growth, while its RNG games segment is more traditional.
Evolution Gaming, a leading provider in the online casino industry, operates through two main segments: Random Number Generator (RNG) games and online live casino. While RNG games involve generating numbers randomly on a screen, the online live casino segment is more akin to traditional casino experiences with dealers and interactive game shows. This segment, which includes popular games like Crazy Time, is innovative and engaging, making it Evolution's main focus. The company's studios, which can broadcast games to multiple countries, operate like movie studios, with one centralized studio in Europe and multiple studios in North America partnered with casinos. This shift from physical in-person to digital casinos is a significant trend, with land-based casinos stagnating while the online live casino sector experiences growth. Evolution's success lies in providing a trustworthy and interactive experience, with dealers present to create a sense of trust and engagement. The economics of Evolution's business are attractive due to the scalability and margins of their centralized studio model, making it a strong player in the new age economy.
Evolution Gaming: The Middleman Connecting Casinos and Players: Evolution Gaming acts as a middleman between casinos and players, earning revenue through a percentage of gross gaming revenue and a fixed fee. They offer branding opportunities and focus on entertainment and uncertainty, appealing to investors with high insider ownership and historically high returns on invested capital.
Evolution Gaming acts as a middleman between casino operators and their players, providing a platform for various games and ensuring their smooth operation. They earn revenue through a percentage of the gross gaming revenue and a fixed fee. Evolution also offers branding opportunities for operators, making their games specific to each one. With a strong focus on entertainment and uncertainty, they're expanding their reach in the gaming market. Evolution's business model is appealing to investors due to high insider ownership (18%) and historically high returns on invested capital (above 50%). Despite recent acquisitions, their return on invested capital has dropped due to an increase in equity base. This is a company that's well-aligned with its shareholders and has a proven track record of success. Investing in Evolution, as well as in nano or micro caps, involves seeking out undervalued opportunities. While stalwarts in a portfolio are chosen based on quantitative metrics like return on invested capital, revenue and earnings growth, nano or micro caps are typically on the cusp of an inflection point and may not screen well quantitatively. Evolution's success story is a testament to the potential rewards of this approach.
Evolution Gaming's Impressive Financial Metrics and Growth: Evolution Gaming, a leading iGaming company, boasts high financial margins and impressive growth, with EBITDA, operating, net, and free cash margins all above 58%, 63%, 58%, and 62% respectively. Revenues reached nearly 1.5 billion euros in 2022, and the company's strong pricing power and high demand indicate significant growth potential.
Evolution Gaming, a leading company in the iGaming industry, has impressive financial metrics with high EBITDA, operating, net, and free cash margins, all above 58%, 63%, 58%, and 62% respectively. These numbers have doubled over the past decade, and the company's ability to maintain these high margins for several years is noteworthy. Additionally, the business has shown impressive growth in revenue, net income, and earnings per share, with compounded annual gains of 47%, 66%, and 63% respectively. The company has kept shareholder dilution to a minimum, and their recent buyback program is a positive sign. Despite not being a dividend investor, the company pays a dividend with a 50% payout ratio and a 50% compounded annual growth rate. The business reported revenues of nearly 1.5 billion euros in 2022, with a market cap of around 24 billion US dollars. Despite the business's impressive growth, it has experienced some growing pains, with revenue growth of 26% and 19% year over year for the first nine months of 2023 and the most recent quarter, respectively. However, the company's strong pricing power and high demand for its products indicate a position of strength and significant growth potential.
Maximize gains with the right tools and expertise: Use tools like TurboTax and Monarch Money, stay informed on investment opportunities, and address turnover at the dealer level to maximize personal finance and business growth.
Making moves in your personal finance and investments requires the right tools and expertise to maximize your gains. Whether it's filing taxes with TurboTax to ensure every credit and deduction is accounted for or using a personal finance app like Monarch Money to track expenses and investments, every dollar saved and earned counts. Additionally, staying informed about investment opportunities, such as those revealed in Tony Robbins' new book "The Holy Grail of Investing," can help individuals make informed decisions and grow their wealth. The importance of tracking employee numbers and addressing turnover, particularly at the dealer level, is also crucial for businesses in the evolving life casino industry.
Tailwinds fueling Evolution Gaming's growth: Technological advancements, regulatory clarity, and growing interest in online gaming and sports betting are driving Evolution Gaming's expansion in the live casino and sports betting industries
Evolution Gaming, a leading provider in the live casino industry, is experiencing significant growth due to several tailwinds. First, the advancement of technology, including lower latency internet and broadband, leads to improved user experiences and better camera and streaming technology. Second, the regulation of online gaming in more countries provides clarity for businesses and creates new opportunities for expansion. Lastly, the increasing interest in sports betting and the convenience of playing online from home are also driving factors. Regulated markets offer a clear framework for businesses, with oversight from regulatory bodies, while unregulated markets lack definition. Evolution's games can be regulated at various levels, from national to state or provincial, and may also be subject to taxes. Overall, these tailwinds contribute to a strong growth trend for Evolution Gaming in the online live casino and sports betting industries.
Evolution Gaming's Revenue from Regulated and Unregulated Markets: Evolution Gaming earns 60% of revenue from unregulated markets, which are significant but risky, while regulated markets offer stability and certainty but may have higher valuations. The company is actively entering regulated markets to mitigate risks and comply with regulations.
Evolution Gaming's revenue comes from both regulated and unregulated markets, with approximately 60% coming from the unregulated sector. The unregulated markets are significant and widespread worldwide, but they also come with risks and potential instability due to regulatory changes. Regulated markets, on the other hand, offer more stability and certainty but may have higher valuations. Evolution is actively seeking to enter regulated markets and is eager to comply with regulations, as these markets provide tax revenue for governments and are becoming increasingly common due to the financial needs of governments. The company's geographical diversity and ongoing discussions with regulators help mitigate the risks associated with unregulated markets.
Evolution's Business Expansion: Asia and Latin America Leading the Way: Evolution's live casino focus drives 60% market share and significant growth in Asia and Latin America. Despite a North American slowdown, the large population and ongoing legalization process offer potential.
Evolution Groups' business is growing across various regions, with Asia and Latin America leading the way in terms of fastest growth. North America, despite experiencing a slowdown, still holds significant potential due to its large population and ongoing legalization process. Evolution's competitive advantage lies in its focus on live casino, which currently accounts for a 60% market share. The company's expertise and extensive game offerings make it the go-to solution for many casino providers. While RNG businesses also contribute positively to Evolution's margins, the live casino segment remains the most attractive area for the company. Competition is increasing, but Evolution's early focus and commitment to this sector give it a significant edge.
Evolution Gaming's Competitive Advantage: Scale, Network Effects, and Innovation: Evolution Gaming's large size and network effects create significant barriers to entry for competitors, while its innovative branded games set it apart in the live casino space.
Evolution Gaming's primary competitive advantage lies in its scale and network effects. The company's large size allows it to keep fixed costs low, making it difficult for smaller competitors to match. Additionally, Evolution's one-stop-shop offering of hundreds of games creates significant switching costs for casino operators, making it hard for them to ignore the company's offerings. Furthermore, Evolution's innovation and branded games set it apart from competitors, making it the leader in the live casino space. However, it's essential to note that maintaining this competitive advantage requires continuous innovation and staying ahead of the competition. As Shree noted, while the barriers to entry may be low, the barriers to execution are high, making it a complex industry to enter. Evolution has perfected its operations over time, and new entrants would face significant challenges in replicating its success.
Evolution's Success in Live Casino Industry: Evolution, a live casino industry leader since 2006, has grown significantly with a focus on innovation, high barriers to entry, and a large workforce, reaching 13,000 employees in 2022.
The online casino industry, specifically live casino, requires significant investment and resources to operate at a large scale and compete effectively. Companies like Evolution, which have been in the business since 2006, have established a strong presence and are difficult to compete with due to their innovation and the high barriers to entry. Evolution's management team, with high insider ownership, has been successful in executing their business strategy. However, they are secretive about their geographical revenue sources to keep competitive information from their rivals. The company's recent use of warrants as part of their incentive program for board members is a controversial move, but necessary for attracting and retaining talent in a tech-driven industry. Evolution's focus on live casino has led to impressive growth, with the number of tables increasing from 700 in 2020 to 1,300 in 2022, and their workforce growing from 4,300 full-time employees in 2018 to 13,000 in 2022. Despite some criticisms, Evolution's continued investment in innovation and expansion is expected to drive future growth.
Company expanding workforce to boost revenue, maintains 50% dividend policy: Company focuses on hiring to grow revenue, keeps dividend promise to shareholders, but faces criticism over capital allocation
The company is focusing on expanding its workforce to boost revenue, while maintaining its 50% dividend policy. Shareholders have expressed a preference for stock buybacks instead of dividends, but the company has not indicated any plans to change its dividend policy. The company is currently engaged in a significant stock buyback program. Despite some criticism regarding capital allocation, the company continues to face challenges in making the best decisions for its investors. The Fundrise Flagship Fund, on the other hand, is taking advantage of the current market conditions to expand its real estate portfolio. Shopify continues to be a popular choice for entrepreneurs looking to start and grow their businesses.
CEO's insider purchases and new game development indicate Evolution's commitment to growth: Evolution's CEO's insider purchases and new game development by Todd Halster show dedication to company growth and engaging users like younger investors on Coinbase.
Evolution Gaming's CEO's insider purchases and Todd Halster's role in developing new games indicate a strong commitment to the company's growth. The comparison of younger investors' behavior on platforms like Coinbase to gambling highlights the importance of Evolution's innovative approach to keeping users engaged. Despite some criticisms regarding recent acquisitions, the potential synergies between these companies could make them valuable additions to Evolution's portfolio. The dynamic market and evolving needs of consumers require continuous innovation, which Evolution seems prepared to deliver through its passionate leadership.
Take-Two Interactive's Acquisition of Zynga: Was it Worth It?: Take-Two Interactive's acquisition of Zynga did not deliver significant shareholder value due to Zynga's slower growth compared to Take-Two's core businesses. Focusing on core businesses and monitoring capital allocation strategies are recommended for investors.
The acquisition of Zynga by Take-Two Interactive in June 2020, despite being made at a potentially discounted price, did not deliver significant shareholder value due to Zynga's slower growth compared to Take-Two's other businesses. The speaker suggests that Take-Two may have been better off focusing on their core businesses, such as the live gaming section, and avoiding the acquisition altogether. When evaluating the intrinsic value of Take-Two Interactive, the speaker suggests using a reasonable earnings per share growth rate and a premium earnings multiple, given the company's above-average business status. By projecting future earnings and discounting them back to the present value, the speaker estimates a 25% compound annual growth rate for Take-Two Interactive. Additionally, the speaker mentions the importance of monitoring Take-Two Interactive's capital allocation strategies, particularly in regards to future acquisitions.
Exploring Evolution Gaming's Investment Opportunities: Monitor KPIs like employee count, table count, EBITDA margins, new studio growth, regulated and unregulated revenue share, and geographical revenue share for insights into Evolution Gaming's growth trajectory.
Evolution Gaming, with its established position in the online casino market, expanding moat, and potential for growth, presents a compelling investment opportunity. Despite the challenges such as hiring issues, competition, and regulatory uncertainties, the company's consistent revenue and earnings growth suggest a promising future. To monitor the investment thesis, it's crucial to track key performance indicators (KPIs) like employee count, table count, EBITDA margins, new studio growth, regulated and unregulated revenue share, and geographical revenue share. These metrics can provide insights into the company's overall health and growth trajectory. Evolution Gaming's low risk but high uncertainty nature, combined with its potential for substantial profits in the future, aligns with the investment philosophy of buying businesses that will generate more profits in a few years.
Personal Ethics and Investing in Gambling Companies: Consider personal values and intentions of management team and end user before investing in gambling companies, as ethical considerations are subjective and vary from person to person.
Investing in a company like Evolution, which provides gambling products, raises ethical questions for some individuals. Some people, like the speaker, may find gambling entertaining and have no issue investing in the company. Others may be concerned about the potential harm caused by gambling and may choose not to invest. The speaker acknowledges that investing is a personal decision and that there is no one-size-fits-all answer. He also mentions the importance of considering the intentions of the management team and the end user. The speaker uses the example of Warren Buffett and his investment in Coca-Cola as an analogy, emphasizing that everyone has different values and priorities when it comes to investing. Ultimately, the speaker encourages thoughtful consideration and personal responsibility when making investment decisions.
TIP Mastermind Community Events at Berkshire Hathaway Shareholders Weekend: Value investors can connect and collaborate at TIP Mastermind events in Omaha, joining costs $197/month or $1970/year, visit theinvestorspodcast.com/mastermind or email clay@theinvestorspodcast.com for more info.
The Investor's Podcast Network (TIP) is hosting events during the Berkshire Hathaway shareholders weekend in May 2024. For TIP mastermind community members, there will be two social events in downtown Omaha for networking and connecting with like-minded investors. The community, which focuses on value investing, was created to provide a platform for investors to collaborate and share ideas. It currently has around 100 members and will be capping at 150. The cost to join is currently $197 per month or $1970 per year. For those interested in joining and attending the Omaha events, they can visit theinvestorspodcast.com/mastermind or email clay@theinvestorspodcast.com. Kyle Stig, a TIP host, encourages listeners to check out his episodes on We Study Billionaires and the Millennial Investing podcast.
A private event for deep Berkshire Hathaway experience: The Berkshire Summit offers exclusive dinners, networking opportunities, and insider info for attendees seeking a more immersive Berkshire Hathaway experience.
The Berkshire Summit is a private, exclusive event for those seeking a more in-depth experience during their time in Omaha for the annual Berkshire Hathaway meeting. The summit offers two special dinners on Friday and Saturday evenings, with notable guests from the Richard Weiser Happier podcast joining attendees. Social hours after each dinner provide additional networking opportunities. The organizer, Clay, has extensive knowledge of the area and is dedicated to ensuring a great experience for attendees, including securing good seats at the meeting and providing information on other events. The social events are expected to offer excellent networking opportunities with high-quality individuals. To learn more, visit theinvestorspodcast.com/Berkshire-Summit or contact Clay at clay@theinvestorspodcast.com.
