What Drove Massive Selloff In Genius Sports Stock?

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Genius Sports

Genius Sports became the latest casualty of the selloff in US sports betting stocks on Tuesday, falling 30% after posting Q3 results.

$GENI was last trading at $9.10 on the New York Stock Exchange, down more than 60% from its highs earlier this year.

Growth over profit at Genius Sports

The selloff comes after the company beat Q3 revenue expectations at $69 million but missed on earnings per share.

It also posted a $70 million net loss and lowered FY21 adjusted EBITDA forecast to break-even from $10-$20 million.

Genius said it was “strategic reinvestment” to fund long-term growth. However, analysts questioned what the change said about the company’s ability to generate cash.

Great expectations

“I think they just set the wrong expectations, said Alex Haak, an equity analyst at NewDeal Invest. “Essentially they came public with a story of pure-play exposure to the US sports betting market while printing close to 20% adjusted EBITDA margins in 2021E. But despite a $70 million beat on revenues versus their SPAC projections, they lowered EBITDA guidance by $35 million. That’s essentially $105 million extra costs on $260 million in 2021 sales.”

Profit priority

With growing concerns about profitability across the US sports betting sector, Haak said the market was “increasingly unforgiving” about weak margin profiles.

That said, the analyst suggested a 28% selloff was “extreme,” driven in part by a red day for growth stocks across the board.

“It is obviously a bad day to report and perhaps there were some funds overweight into earnings and we are seeing that unwind.”

Genius said it still anticipates long-term 40% adjusted EBITDA-margins.

What else did we learn from Genius Sports Q3 results?

The focus on profitability was evident on the subsequent analyst call, particularly around Genius’ official data deal with the NFL.

“Can you talk about the profitability of the NFL deal,” asked Oppenheimer analyst Jed Kelly. “That is what investors are most interested in.”

Genius said the deal would be cash break-even for 2021, i.e. excluding the equity given to the NFL. The partnership is expected to be cash-positive in 2022 and profitable over its six-year span.

However, the provider also said it was impossible to say exactly how much it would earn from the NFL deal because it packaged those rights up with other data feeds and services.

Business momentum

Despite the profit concerns, Genius CEO Mark Locke hailed “unprecedented growth” that “far surpassed” internal expectations. 

“We are capturing more opportunities than ever before, underpinned by the broad adoption of official data by the entire ecosystem,” Locke said. “While only months into our first NFL season, we are even more confident of the long-term prospects of the partnership.”

Genius said more than 97% of the U.S. digital sports betting market was now using its official NFL data exclusively. It announced a new deal with FanDuel on Monday.