Stride Gaming listed in May 2015 with a buy-and-build strategy to help lead the expected consolidation of the fragmented, but solidly growing UK online bingo market and expand into complementary verticals such as social gaming. Since listing, progress has already been made in the form of the $22m acquisition of social gaming business InfiApps at an attractive valuation. Stride trades on an FY16e EV/EBITDA valuation of 12.6x. We believe that further accretive acquisitions and/or international expansion could drive upside from here.
Incorporated in 2012, Stride Gaming is led by an extremely experienced management team. CEO Eitan Boyd and COO Darren Sims have twice developed online bingo businesses together and achieved highly successful exits. Globalcom was sold for $42m in 2007 and Wink Bingo was sold for £60m in 2009 (both to 888 Holdings). Stride has made rapid progress developing its own proprietary software and executing a buy-and-build strategy (three acquisitions to date) to scale its player base and bring in additional technology and expertise.
The earnings-accretive purchase of InfiApps at end July 2015 gives Stride access to the fast-growing social gaming vertical, scale benefits and geographic diversification. The game-playing characteristics of real money gambling (RMG) and social gaming are very similar (the key difference being the ability to ‘cash out’ in RMG and its regulation). Given the overlap between the two verticals, Stride intends to cross-pollinate the best features of each, including brands, business intelligence and data analytics methods, software platforms, content and distribution.
Shares in Stride have performed extremely well since its May 2015 listing, doubling from its IPO price of 132p to the present 272.5p. The FY15 EBITDA of £7.3m materially exceeded the original guidance. The FY16e EV/EBITDA of 12.6x is a slight premium to the peer group, which we believe is fully justified given Stride’s profitability, cash generation and expansion potential. The InfiApps acquisition at c 4x EV/EBITDA demonstrates management’s ability to execute its buy-and-build strategy with a strong focus on valuation. A mix of continued organic growth and further M&A activity offers the potential for further value enhancement.