Bragg Gaming's Restructuring: A Value Investor's Look at Cost Cuts and Competitive Moats

Bragg Gaming is executing a clear and necessary shift in its business model. The company is undergoing a massive pivot to improve its cost structure and drive EBITDA growth, with a stated goal of becoming an AI-First company by 2027. This strategic overhaul is a direct response to mounting pressures: increasingly complex regulatory compliance requirements, recent tax headwinds across key regions, and the need to achieve short-term profitability. The financial position demanded this move. Cash and cash equivalents had dwindled to EUR 3 million at end-September 2025, down sharply from the near EUR 10.5 million reported at the end of 2024.

The restructuring plan is specific and quantified. Bragg will reduce approximately 12% of its global workforce, impacting about 60 employees from a base of 502. The company expects to incur restructuring costs of about EUR 1 million in the first quarter of 2026, with annualized cash savings of approximately EUR 4.5 million from staff reductions and other efforts. This is a disciplined step to secure the cash runway, as CEO Matevz Mazij noted, while also preparing for market consolidation.

The revenue picture, however, reveals a mixed and challenging landscape. Total revenue grew just 2% year-over-year to €26.8 million for the third quarter. This modest gain was driven by explosive growth in new markets-United States revenue grew by 86% and Brazil revenue increased by 80%-but was entirely offset by a sharp contraction in a core market. The Netherlands revenue decreased by 22% year-over-year due to that market's overall contraction from tighter regulations and higher taxes. This divergence underscores the company's vulnerability to regulatory shifts and the high cost of maintaining operations in pressured jurisdictions.

The bottom line is that Bragg is trading off the volatility of rapid, unprofitable expansion for a more controlled path to sustainable earnings. The pivot is a classic value investor's scenario: a company with strong underlying assets and growth potential in new regions is choosing to cut costs and improve efficiency to reach profitability. The success of this turn hinges on the company's ability to generate those promised cash savings and leverage its AI strategy to compound value, rather than simply survive.

Assessing the Financial Impact and Intrinsic Value

The restructuring's financial math is straightforward and necessary. The announced annualized cash savings of approximately EUR 4.5 million directly address the company's cash burn. This is a significant operational improvement, especially when viewed against the third-quarter adjusted EBITDA of €4.45 million. In other words, the cost cuts aim to nearly double the company's core earnings power in one fell swoop. This is the kind of disciplined capital allocation a value investor looks for: using a portion of the business's cash to buy back a larger portion of its earnings stream.

The path to sustained profitability appears to be gaining traction. The full-year 2025 outlook projects adjusted EBITDA between EUR 16.5 million and EUR 18.5 million. At the midpoint, this implies a full-year adjusted EBITDA of about EUR 17.5 million. With the new EUR 4.5 million in annual savings, the company's underlying operational EBITDA-before the restructuring hit-would have been roughly EUR 13 million. The savings thus act as a powerful catalyst, accelerating the journey to net profitability and improving the company's ability to service its balance sheet.

Beyond the immediate cost cuts, a deeper source of potential value creation is hinted at by an activist note. It points out that eliminating executive and director compensation could add $3-4 million in EBITDA. While this is a one-time, non-recurring benefit for a buyer, it illustrates a powerful concept: the company's earnings stream carries a hidden "annuity" value. For a strategic acquirer, this represents pure profit that can be extracted without new investment, effectively increasing the purchase price they can justify. This is a classic arbitrage between the market's current valuation and the potential earnings power of a leaner, more focused entity.

The bottom line for intrinsic value is that the cost cuts are a necessary foundation, but not the final destination. The real compounding engine lies in Bragg's high-margin proprietary content and its AI-driven strategy. The company's proprietary content revenue was up 35% in the third quarter, and its expansion into the U.S. and Brazil shows the scalability of this model. The value investor's focus must now shift to whether the company can leverage its improved cash flow and stronger balance sheet to further scale this profitable core. The restructuring provides the runway; the ability to compound earnings from its competitive moat will determine if the stock's price eventually reflects its true worth.

The Principal-Agent Problem and Sustainable Value Creation

The restructuring plan reveals a classic tension between management and shareholders, a principal-agent problem that shapes the investment case. The company's CEO and CFO alone received over $1.7 million in total compensation in 2024. An activist note points out that a strategic acquirer could eliminate most of this executive and director pay, adding $3-4 million in EBITDA to the business. This creates a clear value gap: the current owners benefit from this compensation stream, while a buyer gains it as pure profit. For a value investor, this is a reminder that the market's current price reflects the cost of running the company as it is, not the potential earnings power of a leaner entity.

Retail sentiment often focuses on the headline numbers of executive pay, questioning its appropriateness. The value investor's focus is more precise: it is on the durability of the company's competitive advantages and its ability to compound intrinsic value over time. The market's skepticism is evident in the stock's 40% decline over the past 12 months. This isn't just about the cost cuts; it reflects deep concerns about regulatory challenges in core markets and the execution risk of a complex pivot. The price drop is a vote of no confidence in the company's ability to navigate these headwinds and convert its promising growth into lasting profitability.

For value to truly compound, Bragg must do more than cut costs. It must convert its 20%+ growth in high-margin proprietary content into a widening competitive moat. The concept of a moat is central here: it is the company's ability to defend its earnings power against competitors. The explosive growth in the U.S. and Brazil shows the scalability of this model, but sustaining it requires more than just launching games. It demands operational excellence, regulatory agility, and a brand that attracts and retains partners. The recent cost cuts are a necessary step to fund this moat-building, but they are not the moat itself.

The bottom line is that the principal-agent problem highlights a potential source of hidden value, but it does not create it. The real work for Bragg is to leverage its improved financial position to invest in the durable advantages that will allow it to earn more, and keep more, over the long term. Until the company demonstrates it can build a wider moat, the market's skepticism is likely to persist.

Catalysts, Risks, and What to Watch

The path from cost cuts to lasting value is now set. The primary catalyst is the successful execution of the company's ambitious AI transformation plan, targeting an AI-First company by 2027. This must drive the promised operational efficiencies and, more importantly, fuel the expansion into high-growth, regulated markets like Brazil and the United States. The recent explosive growth in those regions-U.S. revenue up 86% and Brazil revenue up 80%-must continue and accelerate. This growth must be strong enough to not only offset the ongoing regulatory pressure in markets like the Netherlands, where revenue declined 22% due to tighter rules, but also to fund the company's strategic pivot.

The critical test is converting the company's 20%+ growth in high-margin proprietary content into a widening competitive moat. For a value investor, this is the essence of long-term compounding. The cost savings provide a runway, but they are not the engine. The real value will be built by leveraging improved cash flow to scale this profitable core, defend market share, and increase pricing power. The market's current valuation suggests deep skepticism about this ability. The stock's 40% decline over the past 12 months, coupled with a consensus analyst rating of 'Hold', indicates that investors are valuing the known risks-regulatory headwinds, execution uncertainty-more heavily than the announced cost savings.

The risks are tangible. Regulatory headwinds are not a one-time event but an ongoing pressure, as seen in the Netherlands. The execution risk of the AI pivot is significant; technology transformations can be costly and disruptive if not managed well. Furthermore, the annualized cash savings of approximately EUR 4.5 million could prove temporary if not reinvested wisely into moat-building initiatives. If the savings are simply pocketed as profit without fueling growth, the company's long-term earnings power may not improve as hoped.

From a value investor's perspective, the current price presents a classic dilemma. It could be a value trap-a seemingly cheap stock that remains cheap because the underlying business is deteriorating or facing insurmountable challenges. Or it could be a margin of safety-a price that offers a cushion against error if the company successfully navigates its pivot. The margin of safety exists in the disciplined cost cuts and the potential for the AI strategy to unlock new earnings streams. The value trap lies in the company's failure to build a durable moat, leaving it vulnerable to the very regulatory and competitive forces it is trying to manage. The coming quarters will reveal which scenario is unfolding.