Rivalry Corp
XTSX:RVLY
Earnings Call Analysis
Q4-2023 Analysis
Rivalry Corp
The Rivalry Corp. Fourth Quarter and Year-End 2023 Financial Results Call provided insights into the performance of the company over the past year. Steven Salz, the Co-Founder and Chief Executive Officer of Rivalry Corp., highlighted key financial metrics and strategic initiatives during the call.
- **Revenue Growth:** In 2023, Rivalry Corp. experienced significant growth with a betting handle of $423.2 million, representing an 82% increase from the previous year. Revenue reached $35.7 million, a 34% year-over-year increase, and gross profit amounted to $16.2 million, a 66% rise from 2022. - **Operating Expenses:** Despite substantial growth, operational expenses remained relatively steady, with a notable reduction in marketing spend by $2.2 million or 15% year-over-year. This disciplined approach reflects the company's focus on profitability. - **Net Loss Reduction:** The net loss in 2023 decreased by 22% to $24.3 million, indicating improving operational efficiency and cost management. - **Customer Metrics:** Key performance indicators showed positive trends, including record highs in average handle per customer, average revenue per user, and a significant decrease in the cost of customer acquisition.
- **Q4 Challenges:** The fourth quarter experienced challenges, particularly due to less favorable sportsbook outcomes compared to the same period in the previous year. - **Revenue Decline:** Revenue in Q4 was $6.5 million, a $3 million decrease from Q4 2022, primarily attributed to the impact of sports events on betting outcomes. - **Gross Profit Impact:** Gross profit in Q4 decreased to $3 million, reflecting the challenges in sportsbook outcomes. However, the gross margin remained consistent with the overall year's trend. - **Marketing Spend:** Despite a 32% year-over-year decrease in marketing spend in Q4, the company managed to maintain modest growth, showcasing operational resilience in a competitive environment.
- **Diversification Strategy:** Rivalry Corp. is strategically diversifying its revenue streams and product offerings by entering new segments such as traditional sports, casino, and fantasy. - **Product Development:** The company launched a standalone fantasy NBA app, expanded its casino offerings, and introduced new games to cater to a broader customer base. - **Upcoming Innovations:** Rivalry Corp. is gearing up for innovative product releases and developments in 2024, with a strong focus on enhancing customer experience and differentiation in the sports betting marketplace. - **New Business Verticals:** The company is exploring opportunities in licensing its in-house developed games through a B2B vertical, aiming for global scale and additional revenue streams. - **Crypto Exploration:** Rivalry Corp. is delving into the crypto ecosystem by enhancing support for cryptocurrency on its platform and exploring related technologies to stay ahead of industry trends.
Overall, Rivalry Corp.'s performance in 2023 reflects robust growth, operational efficiency, and strategic foresight in navigating challenges and exploring new opportunities in the sports betting industry. The company's focus on customer experience, product innovation, and revenue diversification positions it well for sustained growth and competitiveness in the market.
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Good morning, ladies and gentlemen, and welcome to the Rivalry Corp., Fourth Quarter and Year-End 2023 Financial Results Call. [Operator Instructions] This call is being recorded on Friday, April 5, 2024. I would now like to turn the conference over to John Vincic. Please go ahead.
Thank you, operator, and good morning, everyone. Speaker on today's call will be Steven Salz, Co-Founder and Chief Executive Officer of Rivalry Corp. Before we begin, I would like to remind listeners that certain statements made during this conference call presentation may constitute forward-looking information and forward-looking statements within the meaning of applicable securities laws. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Rivalry Corp. and its subsidiary entities or the industry in which it operates to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
When used in this conference call presentation, such statements use words such as may, will, expect, believe, plan and other similar terminology. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this presentation.
These statements involve known and unknown risks, uncertainties and other factors, including those risk factors identified in the company's annual information form date of May 1, 2023, under the heading Risk Factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements.
The company undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise other than as required under securities legislation.
And now I will turn the call over to Steven Salz. Steven?
Thank you, John, and thank you, everyone, for joining us today. Typically, we host our investor call the same day we publish the full set of audited financial statements and MD&A. However, this being year-end, we're still ramping up the audit and with those statements -- those statements are still a few weeks away. In the interest of keeping shareholders as current as possible, we wanted to publish these preliminary results as soon as they were ready, and we will be happy to answer any questions you may have at the end of this call.
Now on to the results. As you saw in this morning's news release, in 2023, we delivered a strong full year results. Betting handle of $423.2 million in 2023 was up 82% from the year prior. Revenue reached $35.7 million, a 34% increase over 2022 and gross profit was $16.2 million, a 66% increase from full year '22. Our OpEx remained relatively steady amid our continued year-over-year growth with noteworthy declines in marketing spend, down $2.2 million or 15% year-over-year. Highlighting the nonlinear relationship between spend and growth, which is the key for any business gearing toward profitability, which will remain on the platform and is why we have maintained our H1 profit guidance.
Our net loss in 2023 reduced by 22%, totaling $24.3 million. Player KPIs continue to trend positively in 2023, setting all-time records for average handle per customer, up nearly 30% year-over-year. Average revenue per user up 38% year-over-year and record low cost of customer acquisition down 15% year-over-year. The fourth quarter itself represented a slower finish to the year as it's historically experienced. Betting handle in the fourth quarter was $85.2 million, a modest increase of 1.5% over Q4 2022, while marketing spend decreased 32% year-over-year. Although within the context of such a significant reduction in marketing spend, we are pleased to still demonstrate modest growth, I will reiterate commentary from our Q3 call in late November surrounding the month of October.
That month usually represents the bulk of Q4 before esports goes into the off-season with October, boasting 2 of the biggest events of the year for 2 of the largest esports, League of Legends and Dota 2. This year, the event took place in geographies that were completely inverted for the core betting base on Rivalry around those titles, meaning that matches took place in the middle of the night and given in-play betting represents the majority of sports bets on Rivalry. It did have a negative impact on Betting handle experience during the month of October and consequently on Q4 as a whole.
With the continued diversification in our business across esports titles, traditional sports and casino, we are increasingly blunting the impact of potential events like this. Revenue in Q4 was $6.5 million, a $3 million decrease from Q4 2022 due to less favorable sportsbook outcomes compared to the unusually favorable outcomes experienced in Q4 last year. I'll note, as a percentage of Betting handle revenue was near the average achieved throughout full year '23, highlighting the atypical margin outcome in Q4 '22.
Gross profit was $3 million in Q4, a $2 million decrease from Q4 '22, owing to the relative margin impact noted a moment ago, gross margin itself was in the mid-40s, consistent with the trend experienced all year. And once again, gross profit as a percentage of Betting handle was equal to the average achieved throughout the entire year of 2023, again highlighting the atypical outcome that was [indiscernible] against in Q4 '22 and demonstrating that the margin in the quarter was aligned with the full year trend.
Looking ahead briefly to Q1, we've now begun to strategically deploy the capital from our mid-November investment in areas that are driving customer acquisition and revenue. Among those focus areas, our ongoing efforts to stabilize and improve margins that we're proud to say are yielding results with Q4 -- sorry, with Q1 2024 Betting margin, trending toward a more than 20% improvement over the average in 2023. We expect the full effect of these investments to begin materializing in our results throughout the first half of '24 and beyond as we amplify proven marketing strategies, release higher-margin products and continue developing proprietary betting experiences for our customers.
Overall, we are very pleased with what we achieved in 2023. We exited last year with all-time high customer economics, increasingly diversified revenue streams and a reinforced competitive moat as the market leader in Gen Z Betting. We gained meaningful traction in new segments, such as traditional sports, casino and fantasy, which is widening our opportunity set and positioning us for sustainable growth in the medium to long term. To briefly speak to several of these key accomplishments and tailwinds in more detail, first, we have diversified our revenue streams and product set by entering new segments, including the launch of our stand-alone fantasy NBA app, which is acquiring new users and engaging them in our product universe. Supporting the growth for witnessing in traditional sports, which has grown by 60% since 2022.
Additionally, casino now accounts for half our Betting handle and we've continued expanding that product last year with new games, the launch of our iOS mobile app in Ontario and more. This includes the September release of our latest first-party game, Cash & Dash, which has validated our original game development strategy and its Gen Z customer appeal, becoming the fifth most played casino game on our platform and among the top 10 highest gross thing by revenue.
The momentum of Cash & Dash is carrying into Q1 and creating downstream B2B licensing opportunities that I'll speak to momentarily. As I spoke to earlier, our customer KPIs reached all-time highs. And by the end of the year, Rivalry's total player registrations eclipsed 2 million. The common thread among these exciting developments is establishing brand and product form factor for Gen Z and digitally native users broadly for reviewing Rivarly as an on-ramp to interactive, entertaining and culturally relevant experiences. Rivalry brand and the targeted communities of gaming fans and tech-savvy users we built around us represents 1 of the greatest competitive advantages in the current sports betting marketplace.
Now let's look ahead. 2024 is rife with innovative product releases and developments arising in Q2 and continuing throughout 2024. Our current pace is incredible and unlike anything in our history, setting the year up for success. I've never had more confidence in our product road map and what Rivalry is building this year. Apart from new products, original games and proprietary features, we've been working to dial up the overall entertainment value of our core product, provide a tech-savvy next-generation customer with a tailored experience that is well differentiated within the larger sports betting marketplace.
In addition to the continued refinement of our product set, we are in the process of unlocking what we believe to be 2 of the most material developments to our business model since launching Rivarly in 2018. The first is a B2B vertical to license our in-house developed games, and the second is exploration and development within the crypto ecosystem. Touching on the first. We are very grateful for the incredible industry reception Cash & Dash has received since its late September 2023 release. Our game development strategy has been underpinned by Gen Z expertise, proprietary technology, and entertainment value that we now clearly see is resonating with the next generation of customers. The impact of these games has created a tangible B2B opportunity for our games vertical, opening a new line of revenue for the business that has great potential for global scale.
And second, in addition to adding greater support for cryptocurrency on Rivalry, we are also exploring the implementation of adjacent crypto-enabled technologies to meet growing consumer demand and better serve our target audience of digitally native users. The technology of this ecosystem has reached an inflection point that we believe can meaningfully enrich the user experience on our platform from payments and acquisition to player value and creating enhanced network effects. Evolving alongside our audience and adapting to broader trends in consumer technology will normally maintain our market-leading position among this demographic, but allow us to continue setting the standard for what's possible in this category.
Online gambling on the Internet in 2024 is quite different from even late 2018 when Rivalry launched. Entirely new Internet-based economies earned by significant reduction in payment friction unlocked by cryptocurrency is bringing a whole new global audience into gambling and enhancing many other consumer products. Rivarly's user base grew up on the Internet and isn't nearly entirely under the age of 30. A venn diagram of Gen Z gamblers, gamers, and crypto-enthusiasts or crypto curious has an extremely high degree of overlap, making Rivalry uniquely suited to interface positively and unlock value from this emerging ecosystem.
We will have much more to say on this in the near future and are eager to demonstrate the value creation potential to our shareholders. With all that said, we're deeply proud of Rivarly's operational excellence demonstrated in 2023 and equally excited about the strategy, product set and the many other defining opportunities we have on the horizon in 2024.
At this point, we'll open up the call for Q&A. So operator, can you please provide the instructions.
Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]
Your first question comes from the line of Adhir Kadve from Eight Capital.
I just want to ask on reiterating -- reaffirming the Q1 profitability guide. You guys have mentioned that you're going to put the pedal to the metal again on kind of some marketing spending and all that. How are you thinking about balancing growth as well as profitability initiatives as we head into fiscal 2024?
Yes. Thanks, Adhir. So the guidance is for H1 and the guidance again, we've articulated in the past is really that just having revenue exceed expenses and that inflection point being hit in H1. So it's not necessarily that let's say Q2 is going to be a clean profit or Q1, but that will -- the company will be at a profitable run rate at some point within H1 and then therefore, H2 would be generating a reported and, call it, audited profits.
The bridge to get there is, again, the same as we probably articulated in the past, which is a combination of one, we're getting higher return on invested capital with every dollar that we're putting out. So as we gave in the press release where we've seen obviously pretty significant gains in the average handle per customer, and it was, whatever, 38% in average revenue per customer in 2023, while simultaneously dropping our cost to customer acquisition on a full year basis by 15%. We've jumped it every year. I'd say that our cost of customer acquisition is getting quite low. I'm not sure lower can go at this point in some markets. But -- so if you think about it that way, basically, every dollar deployed is acquiring [indiscernible] 15% more customers who are spending or who are generating now 38% more revenue on per customer in 2023 than we did in 2022.
And then as we said also in the release, our margin in Q1 is trending or just our betting margin. So just again, the revenue we're generating per customer on every dollar wager have increased more than 20% over 2023. So that's just, again, additive on top of that 38% that we grew in 2023. So it's a combination of that. Combined with, yes, we brought in some capital towards the end of last year. We're able now to deploy capital and actually expand marketing spend in places where it's working really well because in Q4, we dropped marketing spend more than 30% year-over-year, which wasn't exactly the optimal thing for the company, but was the state of where things were at the time in terms of what we were comfortable with from a spend perspective.
So the combination of all those things and the positivity we're feeling in Q1 in the margin trend is still giving us confidence in that profit bridge in H1. So we -- yes, we maintained the guidance for this quarter, what we reported.
Okay. Got it. Then the second question I'll ask. You said that some of the bigger events were held in jurisdictions that were less than favorable from a timing perspective. And so that kind of -- it kind of implies that a big part of your customer base, I know you guys have never released a geographic breakdown, but it kind of means that your customer base is more in this time zone? And so just based on some of the markets that are regulating like Brazil in North America and South America. How are you thinking about that Brazilian market and licensing that's going on there? And just any additional color on that.
Yes. I think we've always described and even just our external press that our largest probably great market [indiscernible] to be within the Southeast Asia region and in LatAm with certainly Brazil being an important one. And in terms of the event, so Southeast Asia market Dota 2 is more popular. The Dota 2 International, which is that big giant prize pool that every year, although prize pool this year was quite small because the publisher changed how they funded it. That event was held in Seattle, the whole thing. So people in Southeast Asia who are large Dota 2 betters, which is what we see every year, they quite literally would have to be up at 1 or 2 a.m. for the start of the games.
So this was just kind of quirky stuff that maybe needed a bit of extra detail. But like we literally had marketing campaigns associated with the Dota marketing we were doing in Southeast Asia that was around basically giving people coupons and money to go buy energy drinks and go to convenience stores kind of in like a joking mean way, literally, so they could like stay up and watch the game and therefore, bet on Rivalry. So with our Betting handle being majority percentage in play, essentially every operator now in the modern environment, that, therefore, made it really challenging for the Dota betters because that was the middle of the night.
And then if you look at LatAm, League of Legends is the bigger game, especially in a market like Brazil, and the entire event was basically held in Korea. And it was just basically in the [indiscernible] time zone more so. So that was the exact same situation where they'd have to up at about -- I think the first game started usually around 12:30 or 1 a.m. as well, just started, the first set of games. So it was the same thing there. So we did everything we could kind of maneuver around that, but that definitely had a negative impact on handle on the quarter.
And then to answer the Brazil question, yes, we've been following the regulation for 2 years. This has been a regulatory environment that has said that regulation is coming for many, many years, and people are experiencing that. It certainly right now seems to be the most affirmative around that than it's ever been. People who are watching really closely would see that they published a list toward the end of last year of operators that submitted basically expression of interest and are involved in the process and Rivalry was on that list.
So yes, we are following the process along with everybody else. The regulation itself hasn't yet been published still. So -- and that was expected to come earlier this year. Everyone is still waiting for it. So the recent changes have been positive, though, like, again, tax rate, the gains that are included, verticals, et cetera, everything is kind of going in the right direction. It is like commercially viable, but there's no real finality on the exact time lines, the exact costs, the exact regulation. That stuff's kind of expected to come in the next month or so. So we're kind of waiting for that. But yes, we're fully prepared to do that, and it would be great to put a part of our activity into a regulated market now or a market that, I guess, would become regulated.
So yes, that's always been the nature of the beast when you're in gray markets under an [indiscernible] whatever license. It's kind of just intrinsic to that business that over time, some of these markets may regulate it, either you participate in them or don't, but we're keen to participate in whatever is happening in Brazil and whenever it does happen. So yes, that's about Brazil.
Okay. Excellent. Very helpful. And then maybe my last question is just on these new strategic initiatives, whether it's crypto or specifically the B2B license. What are your expectations for when that kind of hits the P&L? And how should we be thinking of that as a potential revenue driver this year?
Yes. So there's probably going to be relationships that we're going to form that are more like at a global level, again, what I would consider, let's say, the gray market. And then there will be probably individual regulated markets where we'll have specific deals with operators. The regulated market ones will take a bit longer, probably later this year, I can't specify exactly when because it just varies based on the market testing houses and things that frankly are completely not really in our control in terms of approvals. The -- let's say, gray market opportunities could be more near term. I wouldn't say it's H1, but probably at some point in H2 for that one. But we're hoping to be able to just socialize what's actually happening there. We could touch on some opportunities that have crystallized around that in the coming months. So we're pretty eager to talk about that. I can say that the initial set of conversations is positive and continuing to progress. So yes, we'll focus on that.
On crypto, yes. It's something that we've been working on for a number of months. We're not, let's say, in a position to talk about the plans in that much more detail right now. But what I will say is that one thing for sure is just adding greater support for crypto payments across our platform. I think that everyone has obviously seen the run in crypto and it seems to come in cycles. But generally, the technology is at a significantly more developed level than it was a few cycles ago where auto ramps for users into it is much easier way that you can integrate various, let's say, crypto-native experiences into a betting product are here in a way that they weren't a few years ago.
And I'd say also from like a demographic perspective, like if you look at just being real, if you look at mean stocks, and the way that people trade and play those, there's obviously an intrinsic gambling element within that. And the rise of mean coins in the last month or so, these are all basically just crash flash aviator games that are happening in real time every single day across communities on discord and social and elsewhere that is predominantly made up of people under the age of 30, which look and sound in many cases, are quite literally Rivalry users.
So if there's any brand in the space that could interact with it in a completely organic way and has quite literal demographic overlap and user overlap, it would be us. We've been on and off evaluating this for, frankly, like 5 years. So there's clearly a significant unlock, we believe, to be added here. And there are effectively working on related to that for most of this year and something that as well we expect to probably be able to daylight and talk about in more detail, yes, in the next 2 months or so as well.
As there are no further questions at this time, this concludes our Q&A session. I will now turn the call over to Steven Salz for closing remarks.
Thank you, operator, and thank you, everyone, for joining us on our year-end results call. As mentioned, we expect to file the full financial statements and MD&A in the next several weeks. In the meantime, if there's any additional questions, we're always happy to discuss offline, send us an email or anything like that. Thanks, everyone.
I would like to thank our speakers for today's presentation, and thank you all for joining us. This now concludes today's conference. You may now disconnect.