Evolution – The Story of This Company
Evolution provides online casino (particularly online live) solutions to operators.
It takes a cut of operators’ revenue (10%-15%), and is diversified across many operators.
Thus, when online casino industry grows fast, it is likely to grow fast with lower risks, particularly regulatory risks, than the operators.
Online casino is growing fast, due to convenience, scalablity, & opportunities for more innovation.
The shift from land-based to online casino is also helped by improving technology on video streaming and payments security.
And not only online casino is growing fast, online live casino is growing even faster globally.
Thus, this company can ride on the industry tailwind.
And with long runway with management expecting online casino to grow to 50%-70% of total casino from the 10% (with 2% in Live) in 2020 globally.
Not only that, because Evolution is the largest leading player now (with ~80% market share in Europe), it has advantages over others, in riding this tailwind.
Advantages like scale economics, where the largest player can spend the most on developing the best games.
The best games attract players, and the operators then want to offer those games.
This increases the revenues generated from those games, and hence the revenue earned by this company.
This company can then use this money to expand, to hire and train more quality dealers, build more quality studios, develop more quality games.
With more and better games, this company gets better branding, with it having won 11 consecutive years of Live Casino Supplier of the Year award.
This in turn makes all operators want to work with this company. The cycle continues.
However, competitors can still, and did, try to copy Evolution, and undercut it and still earns profits due to the high profitability.
But here’s where many years of experience and knowhow in quality developments & executions provide this company with an edge.
More importantly, this company is not concerned, and has its eyes on the right thing that matters over the long term.
It knows the most important thing, the unchanged thing, to succeed over the long term, is to provide the best experiences to players.
It thus focuses on that, by constantly innovating, not focusing on its competitors but its products and players.
It innovates and constantly produces game-changing games, that can have no bearing to past games.
The eyes are on the future, as that what’s matters, in the eyes of the management of this company, who live by the idea of innovate or die.
If they don’t focus on disrupting themselves and what works in the future for the whole industry, someone else will.
This singular focus on the players leads indirectly to innovation, and can be very powerful.
The innovative culture will attract innovative employees, and promote innovative culture, pushing its innovation even further.
While the companies that have a copying culture will lose the innovative employees and not attract the same, leading to continuous non-innovation.
And the inherent economics of this industry is that players who have the best products naturally gets very good economics.
This is due to the scalability of the games, tables and studios, providing Evolution with significant operating leverage at gross and operating profits level (with 54% NPM in 2020).
This leads to increasingly higher return on capital (with >30% ROA and >50% ROE).
And the best is there is very long runway for deployment of that capital at high rates, as the online casino market is in its infancy globally.
Hence Evolution is well positioned to build its intangibles & cost advantage moats in an industry with strong tailwind & long runway.
Allowing it to extract high profitability, returns on capital and free cash flows, and keeping its competitors away, for many years.
While being supervised & supported by a BOD with high share ownership aligned with shareholders, which includes two cofounders of this company.
All these lead to a high chance of compounding its value, and value for its shareholders, for many years to come.
If you are interested to know more about Evolution, do watch our summary analysis video in the link below (for free)!
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