Better Collective reported Q3 revenue of EUR75.4m which was close to our forecast of EUR76.4m. Growth was 26% of which 16% organic while we forecasted 28% and 16% respectively. On a regional basis, North America was somewhat lower than expected while Europe & RoW was slightly higher than our forecast. US continues its transition towards a larger mix of revenue-share contracts where Better Collective highlights that NDC growth was 73% in North America for Q3 (revenue growth was 24%) and with 64% on revenue-share agreements this builds for continued growing recurring revenue from the region. For Europe & RoW Better Collective commented that South America continues to be a strong growth market and is increasing its share of the revenue mix. Better Collective also added that the sports win margin in Q3 was on a more normalized level compared to earlier quarters which saw an above-average sports win margin. The start of Q4 was somewhat softer than expected with revenue of EUR24.3m in October (we expected EUR26-28m), however, the company adds that a significantly lower than expected sports win margin impacted the revenue with >EUR8m suggesting a strong underlying performance.

The company reported EBITDA of EUR19.6m, which was lower than our forecast of EUR22.9m. While direct costs were largely in line with expectations, the main deviation was in staff costs, which increased more than expected in the quarter, owing partly to costs related to warrants. On a segment level, Paid Media continued to see solid profitability with an EBITDA-margin of 29% (up from 11% in Q3 2022) as the segment benefits from a larger mix of revenue-share based income. Coming to EBIT, the reported number was lower than expected where D&A was somewhat higher. Reported net income was impacted by higher net financials which saw negative effects from unrealized losses on Catena Media shares.

The table below summarizes the Q3-results outcome compared to our forecast.

Better Collective continues to focus on recurring revenue which increased 49% in the quarter and represented 61% of total revenue (up from 52% in Q3 2022). With a total NDC intake of 445k (YoY growth of 27%) of which 87% were on revenue-share contracts the company is set to grow recurring revenue further in the coming quarters, albeit with seasonal variability. Still, while the company continues to see a strong intake of NDCs on revenue share, Better Collective also highlights that this means tough comps for the US business in the next few quarters. In Q1 2023, the company saw a strong boost from Ohio and Massachusetts which launched sports betting and generated a high CPA revenue mix (recurring revenue in Q1 2023 was 46%). Looking into Q3-Q4 2024, the comps should start to get easier however, while the growth trend should also become more aligned with gross gaming revenue development for the US market.

Looking into 2024-25E, Better Collective’s growth will be supported by the acquisition of Playmaker Capital which was announced on November 6 (also see our comment here: Better Collective: Expands Americas footprint with acquisition of Playmaker Capital). The acquisition will expand Better Collective’s position in Americas where the company highlights that it is becoming a market leader in South America as well as further strengthening its position in North America. Playmaker Capital has seen strong growth during 2023, driven by both acquisitions and organic growth. In its Q3-report, Playmaker Capital highlights that it achieved pro-forma growth of 46% in Q1-Q3 2023. Similar to Better Collective, growth was tilted to Q1 2023, driven by the launch of sports betting in Ohio and Massachusetts and as such, the company will likely also face tough comps in Q1 2024. Looking at the consensus estimates for Playmaker Capital in 2024E, growth is expected to be around 10% with a total revenue of around USD60m (cEUR55m). The acquisition is expected to close during Q1, and assuming consolidation from Q2 2024, we expect Playmaker to add some EUR35m-40m to Better Collectives topline in 2024 and EUR55-65m in 2025E.

While we lower our 2023 estimates on the back of the soft Q3 (2023E EBITDA down 7%) we have increased for 2024-25E EBITDA with 6-12%. This comes on the back of the Playmaker acquisition which is expected to close in Q1 2024, and we have included the acquisition in our estimates from Q2 2024. We have also slightly lowered our organic growth assumption for 2024E, taking into consideration that Better Collective highlights tough comps US in the next few quarters, owing to the increased revenue-share mix. The table below summarizes key financials for 2021-25E.

Coming to our valuation, we leave our base case unchanged at SEK380 which implies an EV/EBITDA of 16x 2024E while the share historically has averaged 12x NTM EV/EBITDA. We have increased our discount rate to 8.5% from 8.0% on the back of higher assumptions for the risk-free rate which is increased to 3.0% from 2.5%. However, the negative effect is mitigated by the increased estimates coming on the back of the acquisition of Playmaker Capital. Our bull case and bear case also remain unchanged at SEK520 and SEK205 respectively. The table below summarizes key assumptions for our valuation scenarios.