The house always wins, so I bought the house.

Do You Know the Saying: "The House Always Wins" or "Never Bet Against the House"?This saying is commonly used in gambling and games of chance, and it illustrates the reality of this industry: on average, the player always loses. For this reason, I decided—why play against the house when I can own the house? In this blog, I analyze the Swedish company Evolution AB, which is considered one of the leading providers of online gambling services.

Business Model of Evolution AB

Evolution AB is the global leader in online casino content, specializing in the development, production, and innovation of gambling games for online casino operators. Evolution operates on a B2B (business-to-business) model, which means it provides its services and products to other companies, namely online casino operators, rather than directly to end-users. Operators who use Evolution’s content then offer these games to their customers through their platforms.

Offerings by Evolution AB

Live Casino Games

Evolution provides high-quality live games such as roulette, blackjack, baccarat, and game shows (e.g., Crazy Time, Lightning Roulette).These games are streamed live from professional studios, offering players a realistic casino experience.

RNG Games

RNG (Random Number Generator) refers to games where the outcomes are determined by algorithms that ensure randomness. Evolution uses RNG to develop slot games and titles like virtual roulette, baccarat, and other games.Randomness provided by RNG is essential to ensuring fairness in gambling.

OSS (One-Stop-Shop)

OSS is Evolution’s technological platform that provides seamless and unified integration for operators. Through OSS, operators can access the full range of Evolution’s games, including content from brands like NetEnt, Red Tiger, Big Time Gaming, Ezugi, and Nolimit City.

Annual Report of Evolution AB for 2023

Revenues

Total revenues reached €1,798.6 million, representing a 23.5% growth compared to 2022.

Revenue from the Live Casino segment amounted to €1,523 million, underscoring the dominant position of this segment.

The RNG segment contributed €275 million, with improvements in the frequency of game releases and product quality.

Profit's

EBITDA increased by 25.7% to €1,267.4 million, with an impressive EBITDA margin of 70.5%.

Net profit rose by 27% to €1,070.9 million.

Dividends

A proposed dividend of €2.65 per share represents 52.7% of net profit.

Studio Expansion

The company added 300 new gaming tables, bringing the total to over 1,600 tables by the end of 2023.

New studios were opened in North America (USA), Latin America (Colombia and Argentina), and Europe (Bulgaria).

New Game Development

In 2023, Evolution released 110 new games, exceeding the planned 100.

The most notable games included Crazy Pachinko, Red Door Roulette, and Funky Time—the largest and most expensive game in the company’s history.

Analysis of January–September 2024 for Evolution AB

Revenue Growth

Total revenues for January–September 2024 amounted to €1,588.9 million, representing a 20.1% growth compared to the same period in 2023.

Revenues from Live Casino games reached €1,316.3 million (16.8% growth), while revenues from RNG games increased by 3.6% to €212.9 million.

Profit and EBITDA

Adjusted EBITDA reached €1,106.8 million, reflecting a 19% growth compared to the previous year.

The adjusted EBITDA margin was 68.5%, slightly lower than the 70.3% in 2023, primarily due to increased costs.

Earnings per Share (EPS)

EPS (before dilution) was €4.12, an 11.6% increase compared to the same period in 2023.

Extraordinary Events

In Georgia, operational capacity was reduced to 60% due to labor shortages, sabotage, and vandalism.

Cybersecurity measures successfully addressed video distribution issues in Asia caused by cyberattacks.

Studio Expansion

New studios were launched in Colombia and the Czech Republic.

Projects for new studios in Brazil and the Philippines are underway and set to be completed by 2025.

How I discovered Evolution

I discovered Evolution AB purely by chance. Lately, more and more of my peers have been gambling in online casinos—on buses, at school, and even at home. So, I took the time to research the companies behind these platforms, and the company I found was Evolution.

One of my classmates even gambles during school lectures, playing roulette and similar games—and he’s not alone. This alone shows how widespread online casinos have become compared to physical ones.

Moral Considerations

When considering Evolution AB as an investment opportunity, it’s essential to weigh not only the financial indicators and growth potential but also the moral aspects. Evolution operates in an industry associated with gambling, which raises numerous questions about its societal and individual impact.

One of the key moral dilemmas is the effect of gambling on players, especially vulnerable groups such as minors, the elderly, and those with low incomes.

In my own life, I’ve seen how popular these games have become among my peers. Gambling often evolves into an addiction. Seeing young people who spend all their free time playing online casino games raises questions about the responsibility of companies offering such games.

From an investor’s perspective, the question is simple: are you willing to support an industry that can exacerbate financial difficulties and addiction in exchange for financial gains?

Ultimately, every investor must reflect on their values and priorities. Investing in Evolution AB can be financially rewarding but also requires moral judgment.

For me, the answer is this: the company will operate whether I invest in it or not. People will continue to gamble, and in the end, it’s their choice. It would, however, be unwise to pass up such a good opportunity.

Valuation

To evaluate Evolution AB, I used a projected future earnings per share (EPS) estimate in Swedish kronor (SEK). I divided the analysis into three scenarios—normal, poor, and good:

1. Normal Scenario:I anticipate 10% annual EPS growth for the first five years and 7.5% growth for the next five years. In this case, the intrinsic value of the share is estimated at 1,166.53 SEK.

2. Poor Scenario:In a more conservative estimate, I assume 5% growth in the first five years and 0% growth in the next five years. This gives an intrinsic value of 769.51 SEK.

3. Good Scenario:In an optimistic scenario, I predict 20% annual growth in the first five years and 10% in the next five years. Here, the intrinsic value is 1,867.24 SEK.

   
   

   

   
   

By weighing these three scenarios (normal 60%, poor 20%, good 20%), I arrived at an average intrinsic value of 1,227.27 SEK per share. Including net cash per share (31.52 SEK), the total value rises to 1,258.79 SEK.

With a 20% safety margin, the intrinsic value of the share ensures a sufficient buffer against unexpected market changes. The actual value, including the safety margin, amounts to 1,007.03 SEK per share, indicating that Evolution is currently an attractive investment opportunity.

Conclusion

In my opinion, Evolution AB is an extraordinary company with a strong business foundation and an exciting investment opportunity.

Evolution boasts an excellent balance sheet, a robust business model, and continuously expands its range of games and global reach. Its financial indicators, such as EBITDA and revenue growth, are highly desirable, and the company maintains reasonable debt levels and consistently pays dividends. From a financial perspective, the company clearly performs exceptionally well.

As an investor, I’ve determined that Evolution is currently trading at a fair price, with an intrinsic value of 1,227 SEK, compared to its current price of 832 SEK.