Gaming stocks, notably those that went public through reverse mergers with special purpose acquisition companies (SPACs), have generally had a difficult year, but Codere Online Luxembourg (NASDAQ: CDRO) stands out.
The Spanish sportsbook operator is up 170% so far this year. It became public on December 1, 2021, after merging with blank-check company DD3 Acquisition Corp. II. Among US-listed gaming firms that are the offspring of SPAC transactions, such as DraftKings (NASDAQ: DKNG), Rush Street Interactive (NYSE: RSI), and Super Group (NYSE: SGHC), it is unquestionably the strongest performance.
There are several instances of blank-check agreements gone awry both inside and outside the gaming business, but Codere Online benefited by going public.
"We raised over $100 million net of fees which allowed to fund a very ambitious marketing plan over the subsequent two years,” noted Guillermo Lancha Jiminez, Codere Online’s head of investor relations. “By being able to invest meaningfully in our markets, we were able to our consolidated revenues by nearly 50% in 2022, our first year post de-SPAC, followed by 40% growth in 2023.”
Founded in 2014, Codere Online is a division of Codere Group, the only Spanish gaming company traded on a stock exchange. The online operator is the first Latin American online gaming company to go public in the US.
Codere Online May Be A Forgotten Treasure
Given that Codere Online doesn't operate in the US and has a market value of $368.50 million as of late Monday trading hours in the US, it's reasonable to argue that it might be underappreciated in comparison to other sports betting stocks.
The operator's emphasis on Latin America and Spain isn't a bad thing, though. In particular, some US-based gaming businesses are entering the rapidly expanding sports betting sector in Latin America, suggesting Codere may be onto something by focusing on that area. Presently, Mexico, the second-largest economy in the area, makes up the majority of the operator's presence in Latin America.
In contrast to American online gaming and sports betting companies, which usually aim to penetrate every state in the region, Codere Online adopted a practical strategy in Latin America by concentrating on Mexico and not venturing into other nations only to expand their market reach.
“We put other markets like Argentina, Colombia or Panama, where we currently don’t have a winning formula, on standby while we continued to focus in our core markets,” added Jiminez.
Coder Online Quickly to Become Profitable
Gaming and other de-SPACed companies' propensity to test investors' patience by taking time to turn a profit is one of the main factors dragging down their shares. This was not the case with Codere, which demonstrated the advantages of avoiding the expensive US market by taking just two years to turn a profit.
According to Jiminez, the business is still committed to expanding quickly without jeopardizing its positions in terms of free cash flow and profits before interest, taxes, depreciation, and amortization (EBITDA).
“We have achieved relevant positions in these markets that we plan to defend and as we start to generate cash over the coming months, we will remain attentive to any opportunities that can help us maximize the value for our shareholders,” he concluded.