Shares of GAN Limited (GAN -7.44%), which provides online betting services to other businesses and directly to consumers, fell sharply at the open on Wednesday, losing as much as 22% of their value in the first few minutes of trading. The big news was the company's fourth-quarter earnings update, which hit the markets after the close on Tuesday. Clearly, investors weren't pleased with the results.
From a top-line perspective, 2021 was a big year for GAN Limited. Revenues rose to $125 million from just $35 million in 2020. That growth was driven in part by an acquisition, and partly by new business from casino operators and a rising number of active accounts in its direct-to-consumer operations. That said, GAN Limited's bottom line was stuck in the red, with the company posting another year of losses. The management team has been emphasizing business growth, so that's not exactly shocking, but it says it is shifting gears in 2022, with a "focus on execution, cost controls and profitability." Not a bad call, given the glass-half-empty reception the Q4 earnings release garnered.
That likely has a lot to do with GAN Limited's sequential performance. From the third quarter to the fourth, revenue fell by roughly 5.5%, largely due to weak performance in the company's direct-to-consumer business. That came despite growth in the number of active customers. Sales missed Wall Street analysts' consensus estimates, as did Q4 earnings, which came in at a loss of $0.20 per share. Although that was better than the $0.27 per share loss in the year-ago period, analysts had been looking for a $0.13 per share loss. Investors tend to respond particularly poorly when companies miss on both the top and bottom lines.
GAN Limited's business is still growing, and the difficult fourth quarter was more likely a reflection of the inherent variability in the consumer side of its business than a sign of a major change in its long-term outlook. Still, investors were looking for more here, and they just didn't get it.
Looking ahead, GAN Limited expects 2022 will be another year of revenue growth, guiding for sales in the range of $155 million to $165 million. That's nice and all, but at this point, long-term investors will want to pay closer attention to how management fares on fulfilling its pledge to improve profitability.