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Why Gan Limited's Stock Is Down Almost 10% This Week

By John Rosevear – Aug 20, 2021 at 9:08AM

Key Points

  • Gan's second-quarter loss was wider than Wall Street had expected, but the longer-term story seems intact.

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Earnings missed estimates. But were they really that bad?

What happened

Shares of online gambling services provider Gan Limited (GAN 5.29%) dropped 9.4% this week through Thursday's close. The cause? An earnings miss -- but a deeper look suggests that the sell-off might have been overdone. 

So what

Gan reported its second-quarter results after the U.S. markets closed on Monday, and the bottom line wasn't quite what Wall Street had expected. While Gan's second-quarter revenue of $34.6 million was slightly ahead of estimates, its net loss -- $2.7 million, or $0.07 per share -- was considerably wider than the average $0.01 per-share loss that analysts polled by Thomson Reuters were expecting.

During the earnings call, CEO Dermot Smurfit emphasized that the company is investing in a longer-term growth plan. 

"This [investment] included significant development work in the integration of our new sportsbook engine into our B2B product suite, which we plan to debut at Global Gaming Expo this fall," Smurfit said, adding that Gan also made two significant new content-licensing deals during the quarter. "We continue to emphasize the importance of possessing exclusive content and an industry-leading library of the most recognizable and popular retail games."

Gan's apps are shown on an iPad, a laptop computer, and a phone.

Gan's products include gambling apps that can be customized for individual brick-and-mortar casino operators. Image source: Gan Ltd.

Investors weren't impressed, at least at first glance. Gan's bottom-line miss led to a big sell-off on Tuesday that left the stock down 16.3% by the end of the day. 

Gan's share price did recover a bit over the next couple of days, but that's why it was down for the week through Thursday's close. 

Now what

Were Gan's results really that bad? As chief financial officer Karen Flores pointed out during Gan's earnings call, that net loss of $2.7 million was 39% smaller than its first-quarter loss, thanks to "revenue growth and margin expansion outpacing the growth in our cost structure." 

Gan still has plenty of cash, $52.1 million as of June 30, and no debt. And Flores confirmed Gan's prior guidance for full-year revenue, which is still expected to fall between $125 million and $135 million. 

Long story short: While Gan missed estimates on Monday, it looks like the longer-term growth story is still intact. 

John Rosevear has no position in any of the stocks mentioned. The Motley Fool recommends GAN Limited. The Motley Fool has a disclosure policy.

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