Evolution AB: Market leader with a strong unit economy trading near the multiple bottom



Evolution AB (OTCPK:EVVTY) is the leading B2B online casino content provider. It is well positioned to capture share of the offline gaming industry and improve its scale advantage, leading to strong revenue growth. Growth is supported by its strong competitiveness position (size and distribution capacity) and huge TAM. From an investor’s perspective, I think the current valuation (18x forward earnings) looks historically cheap, especially when EVVTY is five times higher than it last traded at this level.

Company presentation

EVVTY innovates, develops and produces content for online casinos on a B2B basis. EVVTY content can only be accessed through an operator’s interface, which includes important parts of the game experience like player authentication, account management, and user interface.

The products are then marketed and sold to end users by gaming operators. The majority of the largest online gaming operators in Europe and North America are Evolution customers, as are a growing number of land-based casinos that have started offering online gaming.

EVVTY mainly operates in Europe (~62% of FY21 revenue) and Asia (27% of FY21 revenue), while the remaining 11% comes from North America.

Economic model

EEVTY deposit

Economic model

The majority of EVVTY’s revenue consists of commission fees for live and random number generation (RNG) casino games, which are paid monthly by the operators. The commission is calculated as a percentage of the operators earnings, generated through the company’s casino offer. Through commissions, EVVTY is able to benefit from the growth of the online casino market as a whole.

Investment thesis

Capture tons of shares in a huge market

EVVTY’s services are available worldwide and its products meet global demand. The global TAM for the gaming market is enormous, estimated at €359 billion in CY21 (measured in gross gaming revenue). 25% of this amount comes from online games, which have consistently outperformed land-based games in recent years.

From a business perspective, online casinos offer online operators the opportunity to differentiate themselves through innovative gaming options and reach new players through personalization. Traditional land-based casinos can overcome the limitations imposed by physical facilities by moving some of their operations online. Thus, the growth of the market is the result of advancements in technology, which shows that there is still plenty of room for traditional offline experiences to move online.

Thus, the strong demand from gaming operators and their end users is driving the growth of online casinos. Live Casino, where EVVTY has a strong presence and leadership position, is a key product that allows operators to differentiate themselves in the market by allowing them to completely customize both the background and the content. Over the past few years, live casino games have grown much faster than traditional casino games and now account for >33% of total online gaming worldwide.

From 2017 to 2022, EVVTY has consistently captured a larger share of the online gaming market than the overall market. Given the online gaming trend and EVVTY’s scale advantage, I believe this growth will continue.

EVVTY growth vs industry

own model

Apart from high demand, the diffusion of mobile technology facilitates the distribution of online games resulting in increased overall market growth. EVVTY is well positioned to capitalize on this tailwind as its products are designed to provide users with easy access to live casino games across all major platforms. In 2021, 69% of the money generated by games on the EVVTY platform came from mobile devices.

Economies of scale

There are few barriers to entry into this industry. Any player can create and distribute their own game. The ability to scale to success is the barrier here, which results in a low barrier to entry but a high barrier to success. Scale is essential because it enables economies of scale, from which EVVTY benefits as a market leader.

Economies of scale primarily manifest themselves through a cost advantage in personnel costs. The most costly aspect of operating in this industry is personnel costs (EVVTY employs over 15,000 employees in 2Q22), which is primarily related to staffing and recruiting within operations, as well as IT and product development. Scale allows EVVTY to amortize all staff and other fixed costs from its large pool of players, resulting in the lowest unit cost compared to non-scaled players (i.e. say new entrants). An example from a gambling perspective can be seen in live casino games. Live casinos are very complicated products that require more than just a technical solution to be profitable and work well. They also need a certain volume of customers and excellent operational excellence.

Strong unit economy

EVVTY’s profit margins are incredible. The company generates a lot of cash, which means it can fund both organic growth and mergers and acquisitions. Organic growth and strategic acquisitions largely contributed to growth. Over the past nine years, revenue has grown at a CAGR of 48%, while FCF/share has grown at a CAGR of 57%.

Financial growth

own model

This financial advantage in terms of profit margins and growth allows EVVTY to crush its competitors either through its pricing power, by replicating the product or operating model, or by acquiring them. I believe EVVTY’s margins will continue to improve as it grows, further strengthening the company’s leadership position.

Innovation capacity supports growth

Innovation is the essential pillar of the strategy for establishing leadership. Apart from the basic offerings, EVVTY continues to offer variations on the originals as well as new games in order to attract players. In 2019, EVVTY changed the way live casinos work, which shows that it can come up with new ideas.

A live casino is a product that allows operators to differentiate themselves in the market because it allows extensive customization of both the backdrop and the content. As a result, operators and end users will have a one-of-a-kind experience.

With the introduction of in-house developed game shows, EVVTY has transformed the realm of live casinos. This category of games has been a powerful conversion tool to attract new types of players to the live casino, such as new live players and those who don’t typically play live casino. With these game shows, which combine live casino, RNG and augmented reality technology, EVVTY was able to reach a much wider audience and solidify its position as the most innovative company in the gaming industry.

Experienced management with a long-term focus on growth and market share

Management has demonstrated its expertise in this industry through EVVTY’s financial performance. Their focus on growth was clearly communicated:

  1. Pursue organic growth in new markets by leveraging existing proven platform and global offering leadership.
  2. Pursue strategic acquisitions aimed at expanding the product portfolio.

What makes me believe that the management team has experience is that they focus on growth and market share rather than short-term profitability. This is evident from comments made by management on the 3Q20 earnings call when an analyst asked management to increase EBITDA margin.

“We have always said that there will be a trade-off between margin and turnover, we will always increase turnover and aim for market share and continue to grow. I mean, one euro won or a dollar earned is always a euro or a dollar earned. So the percentage margin is just a number. So we want to grow and we will continue to do so…” Martin Carlesund, CEO


Generally, it is impossible to predict the precise growth rate of a high-growth company, especially in a high-growth industry. I think the best way to see the future is to look at the business from a qualitative perspective (as described above) and see if it can continue to grow as it has in the past.

My model assumes that EVVTY can continue to grow at the same high rate as in the past (pre-COVID). As stated in my thesis, I believe that EVVTY’s position in the market improves as it gains market share. I left margins stable going forward just to be on the safe side, as I think management would reinvest excess earnings to capture market share (the right long-term strategy). If EVVTY does as I expect, we can expect a roughly 100% upside by FY23, assuming a forward PE of 18x (near a 7-year low).

Assessment model

own model

Graph, histogram Description automatically generated




60% of the group’s revenues continue to come from unregulated markets. National regulations are being adopted by an increasing number of countries. As a result, gaming operators, and in some cases vendors, are required to apply for and obtain country-specific licenses, pay applicable local taxes, and submit to national oversight. That said, the GGR produced by EVVTY’s customers ultimately determines EVVTY’s revenue. For example, product restrictions (such as participation caps), product bans, and changes that impact how end users act (such as deposit/loss caps, advertising restrictions, or blocking payments) all have an indirect effect on EVVTY.

Concentration of customer revenue

Since FY21, EVVTY has a high concentration of customer revenue (>20%). Even though it has decreased since 2017 over the years, it still represents a significant portion of the business. It is crucial to remember that this is a high fixed cost activity; if 20% of revenue is lost to churn, that could easily be over 20% of FCF.

Concentration of customer revenue

EVVTY FY21 Deposit


EVVTY is long at the current valuation. The market has priced EVVTY near its 7-year low, which is insane given that the company is almost five times larger than the last time it traded at this level. EVVTY is the market leader and is expected to continue growing as it captures market share in the offline gaming market. As the company weathers the near-term macro headwinds, it should continue to perform as expected.


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