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Why GAN Limited Stock Dropped as Much as 10% in Morning Trading Today

By Reuben Gregg Brewer – Nov 12, 2021 at 12:35PM

Key Points

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The betting services company posted earnings that were good one way, but less than impressive from another angle.

What happened

Shares of GAN Limited (GAN -3.91%), which provides online gambling services to other companies and consumers, fell as much as 10% out of the gate on Nov. 12. Around 90 minutes into the trading day the stock was still off by roughly 8%. The company's third-quarter 2021 earnings update, released after the close on Nov. 11, was the likely cause of the pessimism.

So what

GAN Limited's third-quarter revenues came in at roughly $32.3 million, up from $10.3 million in the same quarter of 2020. That represents phenomenal growth. However, the gambling services provider is in growth mode and spending heavily on expansion efforts, including bringing new clients online. So, its loss per share rose to $0.19 in the third quarter of 2021 versus a loss of $0.10 a year earlier. This isn't shocking, even though it might not make investors all that happy.

A person at a slot machine.

Image source: Getty Images.

That said, the bigger issue is probably that revenues were down 7% compared to the second quarter of 2021. The company's net loss in the third quarter, meanwhile, was worse sequentially from a loss of just $0.07 in the second quarter of the year. Although seasonality was noted, analysts had been expecting the loss to be around $0.13 per share. That's a miss in more than one way. And this quarter represents the fourth consecutive quarter in which GAN has missed consensus estimates. Investors don't like to see consistently negative trends like that.

Now what

So, perhaps, it's not surprising that investors were downbeat about GAN shares today after the third-quarter earnings update. However, on a positive note, the company's growth efforts continue to bear fruit. Management noted that it added Treasure Island Hotel & Casino to its simulated gaming platform and extended the reach of pre-existing customers into new states (one after the quarter ended). It also released some new products at an industry convention not too long ago.

So, from a big-picture view, the company still appears to be gaining traction in the gaming space even though it isn't quite living up to Wall Street's expectations. 

Reuben Gregg Brewer 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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