Better Collective reported revenue of EUR78.1m for Q2 2023 which is 12% above our forecast of EUR69.7m. Growth was 39% of which 29% organic while our forecasts were 24% and 18%, respectively. Revenue came in stronger in all segments with North America seeing strong performance in a seasonally slow quarter as it starts to benefit from the transition towards increased revenue-share contracts. Europe & RoW benefitted from a strong sportswin margin while the company also highlights strong growth in South America. NDC intake was also strong coming in at above 500k which was an increase of 32% YoY and slightly higher than in Q1 2023.

The company saw strong profitability with EBITDA coming at EUR28.7m representing a margin of 37% (our forecast was EUR19.3m and 28% respectively). This again illustrates the operating leverage in the business where a large part of topline growth trickles down to results. Opex was overall close to our forecast albeit with slightly higher staff costs but lower other external expenses. The Paid Media segment once again hit new record profitability with an EBITDA-margin of 31% and Better Collective comments that it seems to be a structurally higher margin following the transition to revenue-share income.

The table below summarize Q2-results outcome compared to our forecasts.

Better Collective saw solid performance in all markets during Q2 2023 where the Europe & RoW segment benefitted from a strong sportswin margin coupled with high growth in South America. The company highlights South America as a key growth region where the company earlier in the year launched investments to establish a local presence. As expected North America saw a typical seasonal decline in Q2, however, the YoY growth was strong with a revenue increase of 60% for the region as it benefitted from an increased mix of income from revenue-share contracts. Looking into Q3 2023 we expect revenue to remain at a similar level as Q2 2023 where we assume a normalized sportswin margin will mitigate a slighty stronger seasonality. Thereafter we expect the company to end the year strong, however, tough comps from Q4 last year which was boosted by the FIFA WC suggests YoY growth will be limited.

Better Collective saw a strong NDC intake which came in at 500k for the quarter with a solid share of 87% being on revenue-share contracts. The company has been able to keep a strong NDC intake in the last two quarters following the record level of 581k achieved in Q4 2022 which was boosted by the FIFA WC (during which Better Collective delivered >300k NDCs). The strong NDC intake has been supported by Media Partnerships as well as growing traffic in its Publishing segment and strong performance in Paid Media.

The company also saw strong growth of recurring revenue which increased 66% YoY and represented 59% of total revenue in Q2 2023. The mix of recurring revenue has trended upwards, supported by transiton towards increased revenue-share contracts in North America and Paid Media (the latter saw revenue-share mix increase to 45% in Q2 compared to 25% in Q1). While this level can fluctuate on a quarterly basis, we expect the mix of recurring revenue to continue to trend upwards supported by the high share of NDCs being delivered on revenue-share contracts.

On the back of the strong Q2-results we have raised our 2023E EBITDA with 5% while 2024-25E EBITDA is increased by 2-3%. We now forecast revenue of EUR328m and EBITDA of EUR113m for 2023E which is in the top-end of Better Collective's guidance (revenue of EUR315m-325m and EBITDA of EUR105m-115m). While the company will meet tougher comps in Q4 which saw strong performance on the back of the FIFA WC last year, our forecast is supported by strong performance in H1 2023.

We increase our valuation range on the back of higher estimates where our new base case stands at SEK380 (SEK360) while the new bull case is SEK520 (SEK500) and the bear case SEK205 (SEK200). Our base case implies an EV/EBITDA of 17x 2024E while the share currently trades at c10x 2024E. See the table below for key assumptions for the valuation scenarios. Although the share has performed strongly during 2023, estimates have also been increased, and the share trades slightly below the historical average NTM EV/EBITDA as illustrated in the charts below.