Sports have an innate ability to inspire passion. But the ability to wager on the outcome of a major sports event magnifies this passion further. Across the world, millions of fans bet on their favourite teams or the most critical outcomes during live games. Now, a company wants to integrate its viewership platform with real-time betting to create an unparalleled experience for the most passionate fans.
Toronto-based theScore (TSXV:SCR) is Canada’s largest digital sports media company. In 2007, the company launched one of the first mobile apps for watching sports online. Now, with over 3.7 million monthly active users, theScore app is the most popular multi-sport news app in North America.
However, digital media and live sports is a competitive industry with tight margins and limited revenue potential. This is reflected in theScore’s financial statements. The company lost $8.2 million in 2017 and $6.2 million in 2018 on revenue of $26.3 and $27.7 million, respectively.
Despite this, the company’s stock has more than doubled over the past 12 months. That’s because of a major catalyst that unlocked value for the company in 2018.
The U.S. Supreme Court decided to strike down the Professional and Amateur Sports Protection Act of 1992 in May last year, which means states across the country can now bet on sports legally. This unleashes an industry experts estimate could be worth US$8 billion by 2030.
theScore announced it would enter the market via the first state to adopt online sports betting — New Jersey. Over the second half of 2018, sports fans in the state had already wagered $1 billion, two-thirds of which were online.
The company is uniquely positioned to dominate this market because it already has millions of users across the U.S. states where legalization is expected. The potential revenue this new segment could generate would be worth multiple times the company’s current market capitalization.
Meanwhile, management is investing heavily into another avenue of potential growth — e-sports. Live streaming of video games is already a multi-billion-dollar global business. Amazon’s Twitch platform attracts 2.2 million broadcasters and 15 million viewers every single day. By the end of 2019, the global e-sports industry will generate nearly US$1 billion in sales.
theScore has been building its e-sports platform for the past two years and has successfully accumulated 726,000 subscribers to its YouTube channel. The company is funneling these YouTube creators to its own platform to retain top talent and capture the advertising dollars it currently loses to YouTube’s parent company.
However, even if the streaming e-sports service gains traction, it’s unlikely to move the needle as much as the online sports betting segment. However, both segments will help the company diversify and fortify its business model.
In terms of valuation, theScore is priced like any other growth stock. It currently trades at four times its annual revenue and five times its book value. The company has $8 million in cash and no debt on the book.
Over the past 12 months, the firm has generated $28.54 million in sales. That means revenue per user was $7.7 over the past year. That’s low, considering the gambling losses per adult in Canada is a little more than US$400 according to experts.
If theScore can successfully roll out a sports betting platform across North America and expand its e-sports offering, investors can expect substantial growth over the next few years, which should ultimately be reflected on the bottom line.
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Fool contributor Vishesh Raisinghani has no position in the companies mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon. The Motley Fool owns shares of Amazon.