First the bad news
GAN Limited (GAN) reported a $0.20-per-share loss in the fourth quarter of 2021, and analysts had been expecting a loss of just $0.13 per share. It also missed on the top line, with revenues of roughly $30.5 million, more than 12% below the consensus estimate. Investors really don't like it when a company misses on both the top and bottom lines, so it is hardly shocking that Wall Street was bearish on the stock today. It fell as much as 22% in early trading. But quarterly revenues and earnings weren't the only numbers worth looking at.
Some good news?
For the full year of 2021, GAN Limited's loss came in at $0.59 per share, an improvement from the full-year loss of $0.75 per share in 2020. And on the top line, revenues increased to $125 million from just $35 million in the prior year. This is a small company with a modest $200 million or so market cap, and it's focused on expanding its reach in the online gambling space. That it is losing money while at the same time dramatically expanding its revenues isn't even remotely shocking.
Which is why it's important to dig into the numbers a little bit. For example, a notable part of the earnings miss was related to weakness in the company's direct-to-consumer operations. That's likely a sign of the inherent volatility of this business, which actually increased the number of active customers it serves between the third and fourth quarters. The year-over-year period isn't really comparable with regard to active customers because of an acquisition on this side of the business.
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That acquisition, meanwhile, helped drive the strong year-over-year top-line growth in 2021. But in and of itself, that's good news, too, given that GAN Limited is in growth mode. Revenue growth often comes before earnings for small companies. Also benefiting the top line were some wins on the business-to-business side of GAN Limited, which provides online gambling services to casinos. This business increased revenues to $46.8 million in 2021 from $35.2 million in 2020, with improved platform and content fee revenue helped by new business in Michigan and strength in West Virginia and Connecticut. The company also added to its product offering with an acquisition here. Looking forward, GAN Limited has additional casino customers lined up for 2022 and is expecting sales to increase to between $155 million and $165 million. Just what you would expect from a small and growing company serving an industry niche (online gaming) that is also in its early stages of development.
Short versus long term
GAN Limited didn't have the best quarter, but its full-year 2021 results still speak to a company that is growing. It's important to remember that nothing goes up or down in a straight line. So for long-term investors, it probably doesn't make sense to get too upset about near-term variability when the long-term trend for the business still seems intact. That said, management has made a commitment to focus more on profits in the year ahead, which is probably a good call now that it is starting to gain some scale. If it can achieve success on that front, investor sentiment could quickly turn higher again.
