Bragg Gaming's Revenue Growth Remains Resilient Amidst Headwinds

Bragg Gaming has continued to post solid revenue growth with impressive margins despite headwinds in the Netherlands. Its share price has not reflected these positive developments. As a finance expert, I believe Bragg Gaming is a company worth considering for investment. Its strong revenue growth and impressive margins make it an attractive option for investors looking for a solid investment opportunity.

Bragg Gaming (NASDAQ:BRAG) has continued to post solid revenue growth with impressive margins despite facing headwinds in its largest market, The Netherlands. Its share price has remained relatively flat so far this year and has dropped nearly 25% over the past year, despite several positive developments. The company's proprietary content has seen impressive growth and comes with higher gross margins, which should support double-digit revenue growth and margin expansion going forward.

In its recent Q1 quarter, Bragg Gaming posted €25.5 million in revenue, up 7.1% year over year. Underlying growth was 27% when adjusting for the negative impact in The Netherlands, which is being negatively impacted by regulations. The revenue contribution from its largest customer, BetCity, is expected to fall to 16% of total revenue this year compared to 23% in 2024, with the remaining revenue having low gross margins attached to it. For the full year, management's guidance calls for this strong revenue growth to continue in the coming quarters, with growth of 18% expected in 2025.

The recent press release by BetMGM with preliminary results for Q2 shows that the iGaming and online sports betting industry growth continues to remain strong, providing a tailwind for Bragg Gaming's business. Notably, its scalable business model should enable expansion into newly regulated markets in the US and other geographies with minimal incremental cost. The newly regulated Brazilian market alone is set to contribute up to 10% of total revenue in 2025.

A key driver for growth and margins has been the revenue from Bragg Gaming's proprietary content. This represented 15.5% of Q1 revenue, helping lift gross margins by 600 basis points versus the prior year period, to 56%. Proprietary content revenue grew 69% year over year in Q1, with the trend of adding new US customers continuing even in Q2 with the signing of Hard Rock Digital as a customer.

Management's 2025 adjusted EBITDA guidance points to €20.25 million at the midpoint, which corresponds to $23.3 million. Given its net cash position of $5.1 million, the enterprise value stands at $100 million, which translates to an EV to adjusted EBITDA multiple of just 4.3. However, adjusted EBITDA is not an appropriate metric to apply given the elevated level of investing cash flows in the business. If we deduct this expense from the adjusted EBITDA figure for 2025, we arrive at $9.3 million, which I consider to be a reasonable estimate for the FCF generated by the business. This implies that the stock is currently trading at a price to FCF multiple of 10.8.

The combination of double-digit revenue growth together with strong margin expansion should drive attractive returns for investors ahead. While Bragg Gaming has no direct public peers, Games Global, which planned to IPO last year but subsequently withdrew its application, showed profit margins of over 35%. This demonstrates the margin upside available should the growth in proprietary content continue and become a larger part of overall revenue.

Risks to consider include Bragg Gaming's ability to create hit games with its proprietary and exclusive content, as well as the threat from regulations and the possibility of some larger customers moving content generation and player account management in-house.

References:
[1] https://seekingalpha.com/article/4796501-bragg-gaming-positive-developments-have-gone-unnoticed