Golden Nugget Online Gaming: Management Continues To Execute On All Cylinders

Summary

• Management bumped up 2021 revenue guidance indicating their strategy is being executed flawlessly.
• GNOG will launch iGaming in four more states in 2021 where we expect they will continue to gain market share over time.
• We believe GNOG is gaining market share in MI, and we expect further share gains moving further in the state.
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~13% increase in 2021 revenue guidance highlights further upside potential. Reiterate BUY rating and $24 target price.

Data by YCharts

Q4:20 Highlights

• GNOG reported Q4:20 revenue of $23 million which was in line with the pre-announced range offered in February. NJ was the only state where GNOG was live during the quarter, where revenue grew 48% YoY. EBITDA for the quarter was $6.2 million, with 27% margins. For 2020, revenue grew 64% to $91 million and EBITDA grew 62% to $29m with 32% margins.
• Alongside Q4:20 results, GNOG offered 2021 revenue guidance of $130-$145 million. At the mid-point, this as a 13% increase versus the prior 2021 guide offered in June 2020 and implies revenue growth of 51%. Management also reiterated expectations for operating losses in 2021.
• By the end of 2021, GNOG expects to offer online wagering in 6 states: NJ, MI, WV, VA, IL and PA. GNOG already launched in MI; although, market share has been slightly underwhelming. By mid-summer, management expects to launch online sports betting (OSB) and iCasino in WV and OSB in VA. In the fall, the company expects to launch iCasino in PA and OSB in IL.
• We increase our 2021E and 2022E revenue forecasts by 14% and 10% but reduce EBITDA alongside higher marketing costs.

2021 RISKS

• Lower-than-expected market share in newly launched states.
• Delays in expansion into new markets, primarily WV, VA, IL and PA.

Q4:20 Highlights

GNOG reported Q4:20 results in line with expectations; although, shares declined 14% in response to the result. We believe weakness was related to the market-wide sell-off in tech stocks, as well as GNOG’s underwhelming QTD market share in Michigan. That said, we expect steady market share gains in MI moving forward as GNOG remains disciplined with advertising. The company will launch iGaming in four more states in 2021, where we expect GNOG to maintain market share in the low single digits in initial months but ramping to mid-single-digits after a few quarters.

• GNOG reported Q4:20 revenue of $23 million which was in line with the pre-announced range offered in February. NJ was the only state where GNOG was live during the quarter, with revenue growth of 48% YoY. EBITDA for the quarter was $6.2 million, with margins of 27%. For 2020, revenues grew 64% to $91 million, with EBITDA growing 62% to $29m as margins reached 32%.
• Average revenue per user in 2020 grew 12% to $633 with 30,000 active depositors.
• Alongside Q4:20 results, GNOG offered 2021 revenue guidance of $130-$145 million. This implies a 7%-19% increase versus the prior 2021 guide offered in June 2020, and implies revenue growth of 43%-59%. Management reiterated expectations of operating losses in 2021. In June 2020, GNOG guided an $8 million EBITDA loss in 2021, but we expect losses to exceed this as GNOG launches into new states and ramps advertising. Prior guidance reflected forecasts for NJ, PA and MI, but not WV, VA and IL.
• During Q1:21, GNOG launched online casino and sports betting in MI. For January and February, gross gaming revenue (GGR) in MI totaled $2.7m which implies 2.0% market share in the state. We believe market share for iCasino alone was closer to 2.5%. For March, GGR in MI is trending at $3.3 million which implies a 50% increase versus February. As such, we believe GNOG is gaining market share in MI, and we expect further share gains moving forward as competitors taper back marketing intensity after the initial share grab.
• By the end of 2021, GNOG expects to offer online wagering in 6 states: NJ, MI, WV, VA, IL and PA. By mid-summer, management expects to launch online sports betting (OSB) and iCasino in WV and OSB in VA. In early fall, the company expects to launch iCasino in PA and OSB in IL. GNOG also has market access rights in MS and LA where online gaming is not yet legal. The 10 states where GNOG maintains market access represent 26% of the U.S. population.
• On December 29, 2020, GNOG completed the SPAC merger and ended the quarter with $78 million in cash. On March 8, GNOG completed the redemption of public warrants which offered cash proceeds of $110 million. This compares to $150 million of debt on the balance sheet.
• During the quarter, GNOG also secured market access in New York for iCasino. By 2021, we see potential for NY to legalize online sports betting; however, we don’t expect NY to legalize iCasino alongside the initial deregulation.
• On March 4, GNOG also launched an updated sports betting app in NJ powered by Scientific Games.
• We increase our 2021E and 2022E revenue forecasts by 14% and 10%, but reduce EBITDA alongside higher marketing costs. Our $24 target price implies 75% upside.

GNOG Target Valuation:

Source: Singular Research Estimates

Analyst’s Disclosure: I am/we are long GNOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.