Busy And Useful

Evolution shares are now trading at a price we haven’t seen since 2020 when their growth journey really took off. Today we see a stock with a significant increase in short selling and a disappointing fourth-quarter report. What can really turn this ship around, and is there a turnaround?

How Evolution works

Evolution was created a couple of years before the financial crisis, more precisely in 2006. The company is a so-called B2B operator, i.e. Business-to-Business. Evolution develops, produces, markets live casino solutions to gaming operators. This involves casino games via the web in a studio environment with real people running the tables.

Many people believe that it is better to invest in the companies that manufacture and sell tools to the mining companies, rather than the mining companies that can find potential minerals. In the same way, Evolution provides games to its operators.

The gaming operators in turn use Evolution’s products towards their end users. Well-known customers are Svenska Spel, Betsson, LeoVegas and ATG. In total, Evolution has a total of 800 operators under its umbrella – both large and small.

Evolution continues to pump out games to its operators. It now looks like 110 new games are planned this year, with the majority set to be released in the first half of the year.

Report

The obvious culprit in Evolution is that they are currently in a negative trend. Here we see how the sales growth and also the margin have fallen. Evolution is therefore growing less than before and is also becoming less profitable. That combination is not appetizing.

One of the biggest positive factors in Evolution is that over time it has been able to maintain a very good operating margin of over 60%. Now in the latest report we could read that the operating margin fell from 63.7% down to 61.6%. However, what the market took hardest was probably the forecast for the margin, which was below what we had previously thought. When a company guides for worse times ahead, the market will take it hard.

Q1 2021  was a record for Evolution, with revenue growing by 105%. If we look at the latest report the company released last week, it was down to 12%. In Q3, growth was 17%, so it’s a big loss.

Short selling has increased from 1% to a whopping 7%, which indicates that many believe the stock will fall even further.