Great article. But in my opinion you oversimplified the capital allocation framework. EVO is still a business that generates FCFF ~ €1.1B - €1.3B, asset light business model, huge operating margins and ROIC well above the cost of capital, so the growth is creating shareholder value. At this price level i would prefer that they choose to raise the buybacks. Waiting for the cycle of strict regulation in EU to break and the expansion in the Americas to gain momentum!
Evolution (EVO)'s operating profit margins (OPM) are extraordinarily high. This carries severe regulatory risks
EVO's OPM is higher than its main listed competitor, Playtech (PTEC) and major listed online casino operators like BETS B.
According to PTEC, unregulated markets offer higher margins. No taxes, no limits on customer spend, higher risks, etc.
That's a big reason why PTEC's margins declined significantly after it started scaling down its operations in Asia (mostly unregulated).
Around the same time, EVO's Asia revenue started surging and its OPM started expanding. It seems like EVO stepped in after PTEC exited.
If most of EVO's Asian revenue is indeed unregulated, as I believe it is, EVO faces massive regulatory exposure, making consensus estimates for 2026 and beyond far too optimistic.
What is your take on capital allocation please? It is quite intriguing that the company postponed the announcement of dividend and share buyback to later this quarter.
If EVO plans to replace dividends with share buybacks, they would likely have announced a share buyback together with the suspension of dividends. Precedent: YouGov plc (YOU LN)
I believe M&A is the most likely outcome. With organic growth stalling, it can make sense to rely more on inorganic growth.
For multiple reasons, Playtech plc (PTEC) seems to be the best target.
Thanks for sharing your thoughts on Evolution AB (EVO).
(1) Prediction markets like Polymarket and Kalshi seems like a significant threat to EVO's North America growth. What do you think of this risk?
(2) I also believe piracy is not the only contributing factor to Asia's underperformance.
Around 2024, regulators in multiple Asian countries like Japan, India and Indonesia started cracking down on online gambling. This coincided with the start of Evolution's weakness in Asia.
Why do you believe that the market in asia has matured? I see online gambling as an activity you par take in as a young adult. Unless there is a population decline in Asia I find it hard to believe that the market is matured.
Asia as a market is a complete mystery to me (and to Evolution).
It is not impossible that the market is growing but the market's demand for EVO products on the whole is not growing. (I provided one possible explanation via traditional table games in the article as an example.)
I think the impact of piracy or illegal operators in Asia is underestimated in the article. Not only Evolution is facing this problem, even other operators. I also think that the Asian market is not matured.
Great article. But in my opinion you oversimplified the capital allocation framework. EVO is still a business that generates FCFF ~ €1.1B - €1.3B, asset light business model, huge operating margins and ROIC well above the cost of capital, so the growth is creating shareholder value. At this price level i would prefer that they choose to raise the buybacks. Waiting for the cycle of strict regulation in EU to break and the expansion in the Americas to gain momentum!
Miguel,
Evolution (EVO)'s operating profit margins (OPM) are extraordinarily high. This carries severe regulatory risks
EVO's OPM is higher than its main listed competitor, Playtech (PTEC) and major listed online casino operators like BETS B.
According to PTEC, unregulated markets offer higher margins. No taxes, no limits on customer spend, higher risks, etc.
That's a big reason why PTEC's margins declined significantly after it started scaling down its operations in Asia (mostly unregulated).
Around the same time, EVO's Asia revenue started surging and its OPM started expanding. It seems like EVO stepped in after PTEC exited.
If most of EVO's Asian revenue is indeed unregulated, as I believe it is, EVO faces massive regulatory exposure, making consensus estimates for 2026 and beyond far too optimistic.
I discuss these in detail here: https://angsanaanderson.substack.com/p/evolution-ab-after-falling-65-how?r=5rl2u5
Hope this helps
What is your take on capital allocation please? It is quite intriguing that the company postponed the announcement of dividend and share buyback to later this quarter.
https://x.com/i/status/2021562799567102246
Anthony,
If EVO plans to replace dividends with share buybacks, they would likely have announced a share buyback together with the suspension of dividends. Precedent: YouGov plc (YOU LN)
I believe M&A is the most likely outcome. With organic growth stalling, it can make sense to rely more on inorganic growth.
For multiple reasons, Playtech plc (PTEC) seems to be the best target.
I discuss these in detail here: https://angsanaanderson.substack.com/p/evolution-ab-after-falling-65-how?r=5rl2u5
Hope this is helpful.
amazing analysis, Well DONE!!!
unfortunately I am trapped for some time with Evolution.
I hope that could turn Asia business first and continue expand their Americas business.
but I am not confident anymore. probably they should remove dividend and focus in buying new companies and their own shares
Alberto,
You're the first person I met to have predicted the dividend suspension!
In any case, I find it unlikely that Evolution will focus on buying back their own shares instead.
If this was their intention, they would likely have announced the share buybacks together with the dividend suspension.
For multiple reasons, I believe M&A seems more likely, with PTEC being the most likely target.
I discuss these reasons in my latest post.
Sharp and relevant as always. Thanks!
Ali,
Thanks for sharing your thoughts on Evolution AB (EVO).
(1) Prediction markets like Polymarket and Kalshi seems like a significant threat to EVO's North America growth. What do you think of this risk?
(2) I also believe piracy is not the only contributing factor to Asia's underperformance.
Around 2024, regulators in multiple Asian countries like Japan, India and Indonesia started cracking down on online gambling. This coincided with the start of Evolution's weakness in Asia.
I discuss these in detail here: https://angsanaanderson.substack.com/p/evolution-ab-after-falling-65-how?r=5rl2u5
I'm curious to hear your thoughts on this. Thanks
Where did you get the data for sales by top customers
Company publishes customer concentration percentages in Q4 results. You just need to multiply them with the net revenues.
I think the bouncing around of revenue in Asia is a good indicator that revenue is being impacted due to fighting cyber crime.
Why do you believe that the market in asia has matured? I see online gambling as an activity you par take in as a young adult. Unless there is a population decline in Asia I find it hard to believe that the market is matured.
Asia as a market is a complete mystery to me (and to Evolution).
It is not impossible that the market is growing but the market's demand for EVO products on the whole is not growing. (I provided one possible explanation via traditional table games in the article as an example.)
I think the impact of piracy or illegal operators in Asia is underestimated in the article. Not only Evolution is facing this problem, even other operators. I also think that the Asian market is not matured.
M.value,
Could you share which other operators are reporting significant impact from piracy?
Playtech plc (PTEC), Evolution's main listed competitor did not report significant issues from piracy.
This made me wonder whether piracy is really the big contributing factor behind EVO's underperformance in Asia.
I also wonder why the piracy problem is limited to Asia only.
If you have any insights, I would be interested. Thanks!