When markets decline, best practices are to find companies selling products consumers can’t do without. That would include household items, entertainment, food, and lottery tickets. Wait, lottery tickets? Absolutely. Yes, instant riches, the adrenaline rush of the number postings, and taking part in a game that dates all the way back to the Founding Fathers hasn’t lost its luster. And the better news- technology has given birth to an online lottery, allowing companies in the right Market at the right time to tap into a more than $430 billion global lottery ticket sale opportunity. Lottery.com, Inc. (NASDAQ: LTRY) is ideally positioned to be one of those to benefit.
Granted, that massive market isn’t entirely in play just yet on the digital side. In 2021, only about 7% of lottery tickets were sold online. But, that’s actually the good news when evaluating the LTRY investment proposition, as it leaves plenty of space for the company to score potentially exponential near and long-term growth. And keep in mind, while the 2021 online ticket sales market represented a roughly $2.3 billion opportunity, 2022 is expected to usher in legal ticket sales in at least six new markets, which will likely add an appreciable multiple to that already multi-billion dollar opportunity. That spike indeed bodes well for LTRY.
Know this, too. The current $2.3 billion sales opportunity represents the U.S opportunity. Globally, online ticket sales are expected to eclipse $14.5 billion by 2026. And while LTRY is currently focused on the U.S. markets, international expansion certainly isn’t off the table. In fact, LTRY has made clear its intention to become the preferred, trusted, and most credible marketplace for legally available games to consumers worldwide. In other words, selling into a market 530% higher than its current is already in its revenue-generating crosshairs.
Seizing Its Massive Opportunity
That’s potentially great news for LTRY. But, it can be for investors, too, especially those seizing a window of opportunity to tap into a disconnect between share price and intrinsic value that is ripe for a correction higher. Yes, LTRY shares have been trading lower by about 43% since the start of the year. But keep reading because the numbers being posted by LTRY tell a much more bullish story. In fact, its Q3 filing, including commentary, expose reasons why 2022 is positioned to be the company’s breakout year. Part of the bullish proposition is built around LRTY scoring over $32 million in revenue, a more than 1900% surge over the same period last year. Not only that, gross profit followed that lead, reaching more than $20 million in the same period.
It gets better. Net income rocketed higher as well, turning a $1.2 million loss to a positive $11.2 million in the comparable period. Okay, a quick sidebar. Technically the comparative periods aren’t exactly an apples-to-apples comparison, and that’s because revenues included a $30 million affiliate marketing transaction not in place last year. Still, understanding how that $30 million will be put to work, which they explained, is enough reason to justify praising the Q3 numbers. Keep this in mind, too. LTRY revenues climbed substantially on an organic basis, jumping 38% compared to last year. Thus, as a package, its revenue-generating tailwind coupled with an aggressive multi-million dollar marketing spend will likely fuel massive growth for LTRY this year.
The guidance supports that presumption, with bullish commentary suggesting that 2021 will close its books with more than $71 million in revenues with high-margin support. They expect to do much better this year, guiding revenue growth to continue to track higher as its platform attracts new users, enabling them to purchase state-run lottery tickets online and through its mobile app. Here’s the better news on that front- they may get help driving revenues higher from regulators.
There, a friendly legislative tailwind could expedite expansion into at least six more states in 2022. Keep in mind, too, the “iLottery” market is gaining share in a climate where consumers are turning toward digital shopping alternatives more than ever before. And that shift in purchasing patterns isn’t only about clothing, spirits, and food. Consumers are going digital for just about anything with a price. Lottery ticket sales included.
Thus, considering the trends, LTRY stock shouldn’t be lower. Instead, LTRY looks better positioned than ever to decouple from broader market weakness as investors search for growth stock investments in safer sectors that provide some insulation from the volatility. And with LTRY serving a specialized market primed for extraordinary growth, and because they have the brand, capital, and expertise to maximize an already massive market opportunity, it could result in shareholders getting rewarded sooner than later. Here’s why.
Making Money With Every Print
Foremost, Lottery.com is leveraging the power of a best-in-class platform that provides seamless user services and a means for LTRY to accelerate growth by penetrating new markets faster than most of its competitors. Being quick to market is one thing. Knowing what to do once there is just as important. And LTRY does.
Once set up, LTRY acts independently of state lottery authorities and provides registered users access to legalized lottery games, either on the website or through its app. But it’s more than just access. LTRY takes things a big step further by physically printing and securing purchased tickets on behalf of the user. Perhaps the better part of the platform from a residual revenue-generating perspective is that users don’t have to withdraw winnings. Instead, they can be left in their accounts to use for other lottery games. Since LTRY makes money by selling tickets, having those balances, or at least a portion of them, inevitably drives additional sales, generates user loyalty, and most importantly, earns LTRY a commission. It’s a vital part of the revenue-generating strategy.
Remember, LTRY’s primary source of revenues is based on a “concierge” service fee charged to users. Recent fee structures generate $0.50 for purchasing a $1 lottery game or $1 for a $2 lottery game like nationally popular MegaMillions. Other games entered in the same transaction are charged a flat 6% fee at face value. Thus, a user buying five $2 tickets in one transaction will generate about $1.48 as revenue for LTRY, keeping the fee structure quite reasonable to users. By the way, those concierge charges add up. LTRY noted in a recent filing that the average gross profit per user in 2020 was roughly $17.20. From an investor’s perspective, the better news is that the average is trending higher. Better still, an aggressive campaign to build its user base is in process.
Part of that plan is to leverage an affiliate program that incentivizes partner websites and platforms to promote Lottery.com products and services. To do this, LTRY purchases online add placements in bulk and then resells them to affiliates at a discount in exchange for promoting its platform intending to drive user adoption. Its latest quarterly filing indicates that LTRY is earmarking $30 million to this program, fully intending to generate new sources of cash flows in 2022. By the way, that’s the same $30 million included in the Q3 revenues. But, as noted, because that money is being directly invested with an expectation for significant returns, investors may be wise to consider it a valuable tool to expedite bottom-line growth. In short, it’s no accounting gimmick. It’s an asset put to work.
Printing Tickets Makes a Difference
The more excellent news is that revenues should push significantly higher as users stay engaged with the LTRY platform. That’s happening now. Of particular interest is that the average number of user transactions is jumping from a reported 11.2 to 12.4 compared to the same period last year. Not only that, an increase in tickets per transaction generated a corresponding spike in revenue per transaction by 16%, which is met by strengthening gross margins.
There’s still more to like. Again referencing Q3 commentary, LTRY said it plans to launch proprietary iGaming products separate from its state lottery interests. Revenues from that mission can be substantial. And with savvy investors buying forward-looking expectations, share prices could trend higher ahead of an update.
Also, potentially adding significant revenue-generating firepower to the LTRY investment proposition is an initiative to explore a blockchain platform that they call “Project Nexus.” The intent here is to expand and maximize sales opportunities in the broader iGaming industry by integrating digital tickets, sweepstakes, and enhanced API capabilities into its services. Undoubtedly, progress on this front can be a revenue driver, and hence, share prices could again benefit ahead of expected updates.
Positioned To Break Higher In 2022
Of course, the LTRY investment thesis is built on the premise that the company is in the right markets at the right time. And LTRY is. Remember, market data suggests that only about 7% of the current U.S. lottery market is online, putting LTRY in a sector that’s in its relative infancy with an inherent expectation for near-term exponential growth. By the way, if online lottery follows in the footsteps of online sports wagering, industry growth can be more than quick; it can be off the charts.
At a pace few ever expected, online wagering has earned a massive share of the market, with recent data pegging that share at roughly 82% of wagers made. Can online lottery match that pace? Maybe, maybe not. But, considering that online lottery ticket sales are expected to double over the next few years, a safe wager may be to side with the best companies in the space. Lottery.com quickly makes that list.
Remember, too, markets don’t stay down forever. And when they turn higher, the most fundamentally sound companies tend to lead sector rallies. Lottery.com is likely one of those leaders. Further, it’s important to note that the downdraft in LTRY stock certainly doesn’t look to be company-specific. Unlike others in the space, LTRY posted strong growth and offered impressive guidance. While the LTRY path is promising, what’s not boding well for them is that stocks in the iGaming and online gambling sector have been weak. Year-to-date, leaders in that sector, including DraftKings Inc. (NASDAQ: DKNG) and BetMGM (NYSE: MGM), are appreciably lower. But as noted, a change in sentiment can happen overnight, so don’t overlook opportunities. And with a market cap now touching only about $182 million, the selling in LTRY stock looks well overdone, making LTRY an excellent one. In fact, relying on the numbers they are posting, LTRY presents a very promising investment ticket.
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