Sportradar Stock Supported by Margin Expansion, Growth Outlets
Sportradar (NASDAQ: SRAD) may be an attractive long-term investment in the gaming sector as the sports betting data company discovers new revenue growth sources and as profit margins increase.
In a recent client report, Jefferies analyst David Katz mentioned that he met with senior management of the Swiss firm, and those executives seemed optimistic that the company can achieve a 15% compound annual growth rate (CAGR) in revenue from 2024 to 2027. Sportradar might also greatly increase its earnings before interest, taxes, depreciation, and amortization (EBITDA) margins.
"The company continues to expect 200 basis points (bps) of adjusted EBITDA margin expansion in FY25, with an additional 500bps between FY26 and FY27,” notes Katz. “SRAD noted that a key to margin expansion is top-line growth, as the company’s cost structure is fairly sticky given major sports rights are secured through 2029, and the incremental margins on new revenue are highly accretive.”
A long period without needing to renew agreements with leagues benefits Sportradar since those rights contracts are costly, and the tech company has previously given up equity to secure those deals. Katz mentioned that these costs are expected to rise by high single-digit percentages in the coming years, significantly below Sportradar’s projected sales growth rate. The analyst gives the stock a “buy” rating and sets a price target of $27, indicating a potential upside of roughly 13% from the current closing price.
Sportradar Shares May Benefit from IMG Arena Boost
In March, Sportradar revealed the purchase of IMG Arena and its sports betting assets from Endeavor Group Holdings in what can be seen as a prime example of a sweetheart deal. As part of the agreement, Sportradar receives a total of $125 million while Endeavor commits $100 million in cash prepayments “to select sports rightsholders.”
Sportradar is investing zero for an asset that might aid in sustainable growth. Katz mentioned that company executives think the IMG Arena acquisition could enhance margins and that Sportradar’s scale may effectively optimize the sports rights now owned by IMG Arena.
“We estimate that the deal could represent as much as ~€130M in incremental revenue and ~€30M in incremental adjusted EBITDA, or a high single-digit improvement vs. our current FY26 estimates in addition to the $125M in proceeds paid from the seller,” wrote the analyst.
The deal is anticipated to finalize in the fourth quarter, subject to regulatory authorization in the UK.
Sportradar Cautious About Capital Expenditure
In terms of capital expenditure, Sportradar aims for a cautious strategy, with Katz indicating that the threshold is probably high regarding mergers and acquisitions.
“SRAD was clear that its primary focus is growth of the business, both organic and inorganic with strict criteria for M&A given the company’s current margin profile,” observes the analyst. “Our impression is incremental deals would need to be margin accretive to SRAD, with the most likely targets being additional sports rights contracts, or unique technologies to further improve its product offering.”
Concerning potential shareholder returns, Sportradar might act as an “opportunistic” purchaser of its own stock, which has risen 37.25% since the beginning of the year, establishing it as one of the top-performing gaming shares.
