How we assisted a Hedge Fund in the valuation of a listed online sports wagering company

The Context

The client, a U.S. based hedge fund investing in both public and private markets, wanted the TresVista Team to analyze a publicly listed company and devise an approach to value the stock based on the company’s revenue growth potential. The client was concerned whether the valuation was justified as the stock price had risen significantly since the company’s IPO.

The Objective

To create a valuation model for an online sports wagering company in the U.S. based on the company’s revenue growth potential and assist the client in making a sell/hold decision.

The Approach

The TresVista Team followed the following process:

• Combed through various Wall Street analysts’ take on the target company and different valuation techniques used by investment banks to value stocks
• Built a valuation model based on the insights derived around revenue growth potential, with a focus on unique drivers to account for the various scenarios that may play out

The Challenges We Overcame

The major hurdle faced by the TresVista Team were:

• The company operates in a high-growth industry with many regulatory and legal restrictions. Hence, traditional methods of revenue growth forecasting could not be applied for this company as the revenue growth largely depends on the pace of legalization of the market in which the company operates. The TresVista Team overcame this challenge by building revenue drivers for the company that took into account the pace of legalization of the target market
• Standard Average Revenue per User (ARPU) assumptions could not be made as the industry is subject to ‘whale economics’, represented by large bets that skew the average. Rather than focusing on the ARPU, the amount wagered was driven by the assumption that the trends in the U.S. market would gradually converge with that observed in a mature market (like the U.K.), where sports wagering has been legal for several years

The Final Product