GAN has expressed optimism for its Latin American operations ahead of the World Cup, but it has also pulled its 2022 guidance after a strong B2B performance in the third quarter was offset by B2C headwinds.
During GAN’s Q3 earnings call, CEO Dermot Smurfit and CFO Karen Flores highlighted the upcoming FIFA World Cup as a growth opportunity for its Latin American operations as the tournament provides “another major customer acquisition opportunity” in the region.
For Q3, GAN has reported revenues of $32.1m, a flat rate YoY (Q3 2021: $32.3m) as B2B growth was offset by windfalls in B2C operations.
Broken down per vertical, B2B revenues improved by 14% to $12.7m (2021: $11.2m) thanks to “an increase in platform and content license fee revenue from new content and organic growth within the US real-money igaming business”.
Meanwhile, B2C revenues fell by 8% YoY to $19.4m (2021: $21.1m) “primarily due to unfavorable foreign currency fluctuations, and to a lesser extent a lower sports margin”.
World Cup offers Latin American growth opportunities
Per region, while Latin American operations didn’t see a YoY increase in revenue – down 14% YoY to $9.5m (2021: $9.9m) – GAN noted that growth in the region, alongside strong customer retention, helped its overall active customers improve by 31%.
Despite not providing guidance for the remainder of 2022, Smurfit and Flores both expressed their optimism for Latin America in Q4 during the earnings call, as the FIFA World Cup is expected to be another point of customer acquisition for the company.
When asked about Latin America’s growth rates over the past year, Smurfit commented: “In Q3 2021, in Latin America and certain other key markets, we had a greater than anticipated tailwind from further lockdowns of retail gaming establishments. That was one factor that impacted year over year effectively Q3 2021 with most of that quarter, we had a tailwind that was unexpectedly strong.
“Generally, I think you should think team percentage growth year-over-year would be a natural way of thinking about the B2C business and the growth prospects going forwards.”
Flores added: “We haven’t had another major customer acquisition opportunity really since the Copa America and the Euros in Q2 of last year. So again, we’re looking forward to the World Cup. We think it’s going to be a pretty major opportunity, at least from customer acquisition and underlying KPI perspective.
“Throughout 2023, we’ll have opportunities to reactivate all of the customers that we’ve acquired during the tournament, so we’re excited for what’s to come in the fourth quarter.”
Optimism for GAN US operations
While GAN’s Latin American operations didn’t see an improvement YoY in revenue, the company’s US operations did, growing by 13% YoY to $10.3m (2021: $9.1m).
When asked if GAN can still meet its 2026 targets set out a year ago of reaching over $500m in revenue, albeit, despite the states of California and Florida yet to launch sports betting, Smurfit expressed his optimism for the US.
The CEO said: “California was disappointing for many, but we looked at it as two propositions that effectively split the vote, so it’s, of course, possible that we’ll see perhaps only one proposition come and 2023 which I think would be a relief to many stakeholders and listeners on this call.
“In the meantime, there’s plenty of opportunity for GAN Sports in both retail and online. We’ve made great progress here to date.
“We’re firm believers in our 2026 revenue targets based on the ramp-up and organic growth coming out of B2C in various different international markets, specifically Latin America, but crucially for our core value proposition, which is B2B here in the US.
“We are seeing very, very high levels of demand for the GAN Sports capability, and we look forward to making an additional new client announcement as of when contracts are finalized.”
Q3 financial figures
Regarding other financial figures, GAN reported a gross profit of $22.7m (2021: $21.5m) with net losses of $6.9m (2021: $8.7m) thanks to “improved gross profit margin and lower general and administrative expenses”.
Operating expenses were $27.8m (2021: $28.6m), while adjusted EBITDA was $2.1m (2021: $900,000 loss).
Flores noted: “We remain focused on cost rationalization efforts in order to protect our margins during a volatile and difficult macroeconomic backdrop while ensuring our organic investment behind our key initiatives such as GAN Sports and Super RGS.
“While we are excited about the launch of GAN Sports and progress around other initiatives, as expected, a continued difficult foreign exchange environment and European headwinds impacted our third quarter performance, and we expect those factors to impact our fourth quarter as well.
“Although we are expecting a significant increase in activity for the World Cup, the unique nature of the event and the wide range of potential outcomes for the quarter have led us to elect to suspend our guidance for the full year.”
