Is Sportradar Stock Undervalued Amid the Global Sports Betting Boom?

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Sports betting data provider meets software industry “Rule of 40” criteria, but stock isn’t treated as such, says analyst
Share price doesn’t reflect growth of in-game betting or potential for the biggest states to legalize sports wagering

Shares of Sportradar (NASDAQ: SRAD) have surged by 46.48% year-to-date, positioning the data provider as one of the top-performing gaming stocks. However, there’s an ongoing debate regarding the stock’s true valuation and appreciation in the market.

Analyst Chad Beynon from Macquarie recently initiated coverage on Sportradar, highlighting that the company meets the software industry’s “Rule of 40” criteria. This metric indicates that a solidly performing company should have a combined revenue growth rate and profit margin of at least 40%. Despite achieving this benchmark, Sportradar’s stock seems to have not gained the recognition it deserves as a high-growth software-as-a-service (SaaS) entity.

Beynon’s report suggests an “outperform” rating for Sportradar with a price target of $32, indicating an estimated upside of nearly 26% from the current levels. This discrepancy raises questions on how the market perceives the stock amid its significant growth and performance indicators.

Sportradar Stock Not Reflecting Big Opportunities

Despite its impressive year-to-date increase, Sportradar’s valuation may be overlooking several key catalysts, including growth in in-game betting and the potential for major states like California and Texas to legalize sports wagering.

Beynon pointed out that the current valuation does not effectively account for the expected surge in online sports betting (OSB) particularly in Californian and Texan markets, nor does it anticipate any share gains in Asia and Latin America.

Additionally, the expectations around Sportradar’s integration of IMG Arena into its operations, a strategic acquisition worth $125 million, could further amplify its market stance. Notably, this transaction is set to close in the forthcoming quarters.

Sportradar Duopoly Advantages

Similar to major sports betting operators DraftKings and FanDuel, Sportradar is positioned as a dominant player in a duopoly alongside Genius Sports (NYSE: GENI). The considerable long-term league rights contracts solidify Sportradar’s foothold in the market, offering it a competitive edge as it taps into an expanding total addressable market.

According to Beynon, less than 40% of global sportsbook gross gaming revenue (GGR) is currently utilizing official data, presenting a promising growth runway for providers like Genius and Sportradar. The increasing popularity of NBA in-game betting and advancements in artificial intelligence (AI) could significantly enhance Sportradar’s margins, especially if both California and Texas approve sports betting regulations.

Beynon optimistically estimates that Sportradar’s business could achieve margins exceeding 30% by merely integrating sports betting into both Californian and Texan markets. The anticipated uplift of approximately 500 basis points at maturity from these states represents a substantial opportunity for the firm.

In conclusion, while Sportradar continues to show exceptional growth as reflected in stock increases, the market does not seem fully aligned with its potential. Factors such as in-game betting expansion, significant state legalizations, and strategic acquisitions could unlock further valuation gains, making it a compelling stock to watch.

Stay tuned for updates as the world of sports betting continues to evolve, and confirm your strategies with thorough market research.