Shares of Gan Limited (GAN), which provides online betting products and services, were lower by as much as 18% at one point this week. They started Friday, Nov. 19, off by a little more than 16% according to data from S&P Global Market Intelligence. The downturn actually started last Friday when the company reported third-quarter 2021 earnings, sending the stock down as much as 10% on Nov. 12.
The company's earnings were a bit of a mixed bag. On the one hand, Gan's revenue rose materially year over year in the third quarter, more than tripling to roughly $32.3 million. However, it was down 7% from the second quarter, which the company said was largely due to weak sports gaming results and seasonality. On the bottom line the company lost $0.19 per share, which was worse than $0.10 it lost in the third quarter of 2020, the $0.07 it lost in the second quarter of 2021, and Wall Street's expectations for $0.13 per share of red ink. As the market has digested these numbers it hasn't gotten any more comfortable with the results and the stock has continued to fall all week long. The stock started trading on Nov. 19 down by roughly 22% since it reported earnings.
There were some good things in the quarterly report, however, as the company's growth efforts continue. That includes adding new customers (Treasure Island Hotel & Casino) and expanding its reach into new states (sports betting in Arizona and Connecticut). That's basically the big-picture story here, as Gan looks to gain market share across the gambling industry on both the business-to-business side and direct to consumers. And yet, there are other things that might trouble investors. For example, weak sports gambling results were a function of more people winning than losing (the company used the term "player-friendly event outcomes" to describe this), which exposes some potential volatility risk in the business model. And the company's customer acquisition costs rose from $30 per new customer to $45. That's a 50% increase and it wouldn't be shocking if investors found that increase a bit disconcerting. If Gan can't get that number down, its business could be less profitable than investors had been modeling out. The company clearly tried to put a positive spin on the quarter, but investors appear to think the negatives outweigh the positives.
With a less than $500 million market cap, Gan Limited is a very small company. There are exciting opportunities it is trying to capitalize on, including increasing demand for online gambling and online sports betting. But the trend forward is, obviously, not going to be a straight line higher. And when you disappoint Wall Street the reaction can be notable, negative, and lingering. Long-term investors looking at the gambling space should definitely be watching Gan. And anyone who owns it should be prepared for some volatility given the still-young markets it serves and its still-small size. There are very real opportunities here and the company is capitalizing on them. That said, more conservative types would probably be better off sitting on the sidelines here given the risk profile of this still tiny upstart.