NetEnt Stock Analysis – Updated March 2020

On this page, you will find the latest analysis, news and forecast for the NetEnt stock. First, we will give a quick overview of this casino game developer. We will then go into depth and analyse the key drivers for potential growth such as the acquisition of Red Tiger and growth of NetEnt Live. We then analyse the financials before we end with providing a summary and our estimated target price for the NetEnt stock in 2020.

netent logo

NetEnt History

The company was founded by Swedish entrepreneurs in 1996. In 2007 it was spun off from Cherry. The stock had its peak in 2015-2016 with an all-time high (ATH) at 95,55 SEK. As of writing this article, the stock price is 24,30 SEK. This means that the company lost 75% of its value. The past years have been challenging and 2019 was no exception with a 30% decline in the stock price. There is, however, as Therese Hillman mention in the latest report (Q4 2019) hope for the future.

Quick Facts

Name: NetEnt AB

Stock Symbol (Ticker): NETB

Dividend 2020: 1 SEK per share approx 4,1%

“We see good conditions for NetEnt to deliver growth in 2020, supported by our combined game portfolio and Live Casino”

Therese Hillman

NetEnt Stock Analysis Update March 2020

After a tough year with a lot of regulations, the key drivers for growth is Red Tiger and Live Casino. That is why we will focus on these two factors below. But we will also briefly mention NetEnt Connect, the USA potential and the recent Insider Trades.

Red Tiger

On the 5th of September NetEnt acquired Red Tiger. Since the acquisition, Red Tiger has launched 19 new games. The main competitive advantage with Red Tiger is the daily jackpots but also the low production cost and high productivity of quality games. Below we list the two main reasons why we think Red Tiger and NetEnt will do great together.

First, new and innovative games that can be developed together. With the acquisition, NetEnt now has access to Megaways and Daily Jackpots. Megaways is a unique concept from the Australian company Big Time Gaming which means that the slot has 117,649 paylines. Giving players the chance to win big. Red Tiger has a good deal with Big Time Gaming. Daily Jackpots is developed by Red Tiger. Daily Jackpots are progressives which are guaranteed to pay out before a set time each day. A great community product that’s gone truly viral. Red Tiger launched Piggy Riches Megaways at the end of January. It is based on NetEnt old classic game Piggy Riches but has the Megaways functionality and Daily Jackpot plus Smart Spins (an engagement tool to give away free spins that is also developed by Red Tiger). It was according to the latest quarterly report the best game release ever from Red Tiger. Later this year, NetEnt will also release Starburst Power Pots which is based on NetEnts most popular game ever, Starburst. We are sure NetEnt will make more of these innovative co-produced games with new game featured that can accelerate the growth.

Secondly and maybe more important, Red Tiger can use the network of contacts to sign partnerships with many new casinos that NetEnt already have an established relationship with. This means that Red TigerĀ“s games will be released on many new markets, both regulated and unregulated. This will, of course, accelerate the growth even further for Red Tiger games. Here are the new partnerships that have been released so far:

GentingBet, October 7, 2019
Cherry Casino, October 14, 2019
Interwetten, October 21, 2019
No Account Casino, October 30, 2019
Novibet, November 6, 2019
777.ch, December 6, 2019
Swiss Casinos, December 16, 2019
Royal Panda, December 20, 2019
Lottogo, January 7, 2020
Nike, January 30, 2020
BoyleSports, February 19, 2020
SoftSwiss, February 24, 2020

NetEnt Live

NetEnt Live has been a catastrophe for NetEnt for a very long time (was initially launched in 2013). The product has not been good enough. NetEnt got to see Evolution Gaming (EVO) completely owning the niche. EVO has been growing rapidly and just in the last 3 years, the stock has increased by more than 400%. The new NetEnt Live was initiated in the end of 2018 when Henrik Fagerlund was appointed as the Acting Netent Live Director. Henrik has been with NetEnt since 2014 and owns quite a lot of NetEnt stocks. Just in the last 6 months, he has bought stocks at 3 different occasions. Henrik had the Acting NetEnt Live Director from September 2018 to February 2019. On his LinkedIn Henrik writes: As acting NetEnt Live Director “I was overseeing the “Big 5″, being Commercial, Product, Dev, Studio and Tech Ops teams. The 2 biggest achievements, by far, during this short tenure was to set a new product strategy and to close a top recruitment of the permanent NEL Director which is Andres Rengifo (from Evolution Gaming Top Management).”

From February 2019 NetEnt have new management for NetEnt Live with Andres Rengifo and several other people. Andres comes from top management at EVO. It took a year for Andres and the team to turn NetEnt from having bad products to have products that according to us can compete with EVO. So far NetEnt has very few live casino games and are far behind EVO, especially when it comes to Game Shows and so on. But for regular Blackjack and Roulette NetEnt Live now has very good products.

Here is the development of NetEnt Live according to the last quarterly reports:

“Within Live Casino, we now have a new management team in place that are making changes to the product and business model to ensure that we can offer a competitive product.”

Q1 Report 2019

“The transformation of Live Casino continues at full speed and we added several new functions during the quarter to make our product more competitive. The customer response is positive, and we expect growth in the coming quarters from this segment, but it will take a few more quarters before we can see more meaningful revenues.”

Q2 Report 2019

“Within Live Casino, we continue to pursue our plan to make improvements to the product and organization. We rolled out an upgraded user interface for a better player experience as well as products such as Perfect Blackjack and Network Branded Casino to our customer network.”

Q3 Report 2019

“Since December, we have seen all-time highs in player numbers for our Live Casino. We are now expanding the studio in Malta and will soon be offering physical tables to our customers for the first time, as an alternative to our tables with blue screen technology, which should contribute to increased revenues from Live Casino in 2020.”

Q4 Report 2019

Many new products and enhancement to existing products have been made. Here is a list of some of the major news from NetEnt Live in the last 6 months.

Launches Perfect Blackjack across the Network, September 30, 2019
Network Branded Casino, October 7, 2019
New design for Blitz, October 17, 2019
Wins price for Live Casino, November 11, 2019
Auto Roulette Studio, December 3, 2019
New VIP BlackJack, December 16, 2019
Enhanced Mobile Live Roulette, January 9, 2020
New Studio with the Silver and Gold Rooms, February 24, 2020

If you are not convinced that NetEnt Live is on the right track. Maybe the best way to analyse its products is to go to the different online casinos and actually see how much exposure NetEnt Live get. As you can see NetEnt starts to get quite a lot of exposure on several casinos. With increased quality in the products, it should not take long before NetEnt can sign new partnerships with their Live Casino offerings.

Live Casino at Paf.com
Live Casino at Rizk.com
Live Casino at Bethard.com
Live Casino at LeoVegas.com
Live Casino at MrGreen.com

It is difficult to say which of NetEnt Live products that will be most successful. NetEnt has a more cost-effective product for branded Live Casinos compared to EVO. The name of the product is Network Branded Casino (NBC). It uses “blue screen” technology so that each casino brand can get a customized look and feel of the Live Casino Studio. With the blue screen technology, many casino brands use the same dealers and the same physical rooms but change the background and branding of the room. It can in this way be branded over and over again. See this example from Bethard.

NetEnt Network Branded Casino at Bethard.com

Other products that are popular is Perfect Blackjack, Blitz Blackjack, Auto Roulette and the two new physical rooms Silver and Gold. Later this year Baccarat will also be released.

NetEnt Connect

Another project that could be successful going forward is NetEnt Connect (an aggregation platform) that was launched in December 2019. It is a great way of getting Red Tigers content to NetEnts already existing customer base. NetEnt is also connecting additional game developers to this platform. In addition to Red Tiger also Games Inc, G (formerly known as Gluck Gamevy) and Scout Gaming Group have connected to the platform. We believe that this platform will also be a great tool and platform for NetEnt when acquiring other game developers and want to get the games out quickly.

NetEnt USA

The development for NetEnt in the USA has been great and NetEnt continues to grow fast on this market. We see a lot of potential for NetEnt in the US going forward. There are many triggers but two mains ones are if Red Tiger will launch their games and that if NetEnt launches their Live Casino in the US.

NetEnt Recent Insider Trade

Therese Hillman (CEO) Henrik Fagerlund (Managing Director Malta), Pontus Lindwall (Board Member) all bought stocks after the Q4 2019 report was released on the 12th of February 2020. It is especially interesting that Therese is buying even though it is quite a small amount she becoming more and more positive about the future. Both in the reports/presentations and that she buy stocks.

Financials

We believe that since Red Tiger has a profit margin of at least 60% the margins for NetEnt will go up over time. NetEnt has been very good at cost control during 2019. NetEnt has also taken cost for the development of NetEnt Live so we expect the cost to be lower or at least that more revenue than cost will follow with increased investments for the Live Casino from here on.

Here are some of the financial data. First, you will find the actual numbers for 2019, then you will find our forecast for NetEnt this year. After that, we will give our prediction on the target price for 2020.

Here are the actual numbers for 2019

QuarterRevenueEBITAEBITProfit
Q1 2019418197126120
Q2 2019419201130120
Q3 201944319611284
Q4 2019512261161113

Numbers in kSEK (million Swedish kronor)

Here are our forecasted numbers for 2020

QuarterRevenueEBITAEBITProfit
Q1 2020520265170150
Q2 2020540275175160
Q3 2020560285180165
Q4 2020580295190175

Numbers in kSEK (million Swedish kronor)

Number of stocks = 239 million
Estimated PE =12
Target price using Profit = 12 * 650 = 7800/239 = 32,6 SEK
Target price using EBIT = 12 * 715 = 8580/239 = 35,9 SEK
Target price using EBITA = 12 * 1120 = 13440/239 = 56,2 SEK

Our Target Price 2020 = 48 SEK

If NetEnt can grow more than we forecast most of the additional revenue will become profit which means that the target price can become significantly higher.

Summary of NetEnt Stock Analysis

The stock is at 24,30 SEK when writing this analysis. It means that the potential for 2020 is a 100% increase in the stock price. The key drivers to make the stock double in value is Red Tiger and Live Casino even though there are more drivers such as the USA, NetEnt Connect and more. With Red Tiger, the company now has access to Megaways, Daily Jackpots and a team that can produce slots in a fast and cost-efficient way. NetEnt Live now has great quality and is getting more and more exposure at different casinos. More partnerships, games and studios can be expected to launch in 2020. If buying the stock before the 30th of April you will also get the dividend of 4,1% (1 SEK per stock).


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