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2Q25 Update.
Looking at this quarter’s growth of +3.1% y/y versus last quarter’s +3.9% y/y, it may not seem like much to celebrate. However, as a reminder, last quarter was the first quarter they ever reported a contraction in revenue on a sequential basis. This quarter they have at least returned to positive growth, despite ongoing headwinds.
Adjusted for FX though, revenues were +8.8% y/y, an acceleration of 270bps compared to last quarter. Live grew 4% y/y while RNG was flat. They attribute this slower growth in part to one of their largest payouts ever. However, on the call Martin clarified that even without that payout it wouldn’t have been a good quarter for RNG.
There made encouraging comments too that progress was made on the Asia Cyber Attack situation. (We explain in more detail below what was happening with insights provided by a former Evolution executive of 14 years, sourced from AlphaSense. Free AlphaSense trial link here). Asia revenues were +4% y/y and this quarter was the first in a year that revenues grew sequentially.
The self-inflicted pain by ring-fencing European activity resulted in the second consecutive quarter of negative growth. Europe was -6% y/y. This can be expected to be a headwind for three more quarters until they lap their initial ring-fencing efforts. (There was only 2 months of it factored into 1Q25).
As CEO Martin Carlesund explains below, they essentially are now double checking that their games are being played with licensed operators in the proper market. This means they are forgoing revenue from operators who somehow acquired their games (likely from aggregators) and opted to operate illegally.
Illegal online gambling can exist even in markets where gambling is legal because the operator wants to skirt certain laws—like betting limits or deposit limits that make it hard to cater to whales. Martin elaborates in the quote below. (Channelization is just a euphemism for players playing illegally instead of legally).
On the call, Evolution did note that regulations are impacting them more than they expected in Europe. Other markets helped pick up the slack though.
North America was a bright spot with revenues reaccelerating to +23% y/y. Martin emphasized that the live casino market in North America is still very nascent as gamblers are only really used to land-based casinos and online RNG. This should be a tailwind for them for many years to come.
They also struck a partnership with Bally’s Casino in Rhode Island which gives them a footprint in that state. They now have a presence in all 7 states. Furthermore, they renewed and expanded their Hasbro deal to allow the roll out of Monopoly Live to the US. Renewing this deal was important because had they not, there would have been an opportunity for a competitor to steal a top Live Casino game from them.
This is still a big game release year for them with them planning to release 110 games in 2025 (unclear how many they already have).
Turning to profitability, EBITDA margin was slightly pressured at 65.9% as they continue to invest in studios and hire, despite revenue headwinds. They expect a better second half of the year and reiterate their full year margin guidance of 66-68% though.
EPS for the quarter was at €1.22, down €0.06 from last year. TTM EPS is €5.86.
After our call notes below, we give an Evolution business overview and more color on the ring-fencing and cyber-attacks.
Press Release and Call Notes.
Asia
- Cyber Attacks
- “We continue to address the ongoing issues with cybercrime and the hijacking of our video streams in Asia, where we are continuously moving forward. Other businesses, not only those in Online Gaming, are facing similar challenges, and we know that we are in the absolute technological forefront in defending our intellectual property and our products”
- “As we deploy new measures constantly, we are starting to reap some benefits. The revenue for the region is back to growth and we remain very cautiously optimistic for the remainder of 2025”
- Philippines Studio opened
- Philippines is the first licensed iGaming jurisdiction in Asia
- Regulation has switched to the PAGCOR framework after POGOs were made illegal
Europe Ring Fencing
- Another quarter of negative growth due to ring-fencing
- “maintain that regulation is positive over time”
North America
- Momentum remains strong
- New Studio in Michigan
Latin America
- “Highly optimistic in terms of market opportunities in the medium to long-term, but we also recognize that it will take time for operators as well as for players to get used to the new regulations in Brazil.”
- Opened Brazil studio
Partnerships
- Expanded Partnership with Hasbro giving them the ability to launch Monopoly Live in the US
- Developing 3 new Hasbro IP based Live Casino games
- Partnering with Bally’s in Rhode Island, giving them a presence in the state for the first time
Capital Allocation
- First half of the year bought back 3.2mn shares
- Share purchases + buybacks have amounted to ~€800mn
Guidance
- Second half of the year will be stronger
- Maintain full year EBITDA guidance of 66-68%
Business Commentary.
Evolution has faced many headwinds and hiccups over the past couple years from the Georgia strike and UK investigation to the on-going Asia Cyber Attacks and proactive EU ring-fencing. All of this has muddled their underlying results.
While investors who were penciling in 20% growth for many years to come may have been too optimistic, few would have thought revenues would contract as they did last quarter. However, Evolution has proved to be resilient and there is light at the end of the tunnel.
Currently the two big factors hampering growth are 1) the Asia Cyber Attacks, and 2) the EU ring-fencing. We will explain in more depth what these both are and then conclude with some final thoughts.
First, it is important to note that everyone who Evolution sells to is a licensed operator or aggregator. There are no exceptions to that.
This is different from whether a market is regulated or unregulated. A regulated market is a market that has laws that make gambling legal. An unregulated market can either be a market that has no gambling laws (so not explicitly legal or illegal) or a market that has laws that make gambling illegal.
So how does their games end up in unregulated markets when all of the operators or aggregators they sell to are licensed? In short, many operators or aggregators do not follow all laws and players will also skirt local laws with VPNs.
Since Evolution is a game supplier, they historically have only been responsible for making sure the party they sell the games to are legally allowed to buy them. There is some minimum diligence they conduct on all customers, but they are not responsible for checking that every player on the customers’ site was accessing it legally.
Evolution would draw an analogy to a slots machine provider and a casino, noting that the slot machine provider only has to make sure the casino is allowed to buy the machine; they are not responsible for whether the casino is properly checking IDs on who plays it.
This has been changing recently as regulators have a hard time regulating operators as they can simply close down shop and disappear, to only reappear under a new name shortly thereafter. Since Evolution has dominated the Live Casino space, regulators are now looking to the suppliers to help ensure the games are being appropriately accessed by an end user in a legal jurisdiction.
Essentially, it is easier for regulators to force the half-dozen or so relevant suppliers to check a customer is accessing a game legally then to go after the hundreds of operators. (This might not do much though if a player is playing through a VPN in which case Evolution actually might not know where the traffic is truly coming from).
At the end of 2024, the UK Gaming Commission found Evolution Games on operators’ sites who were operating illegally. In this case their games were on unlicensed operators’ sites. This was likely because they sold games to a licensed aggregator who then sold them to an unlicensed operator. The UK Gaming Commission basically didn’t accept that and wanted to hold Evolution accountable, nevertheless. As mentioned, this is in part because it is too hard to go after the operators, as this former manager of Evolution noted below.
It seems a compromise is being struck where Evolution will now create a technical solution to check that games are being accessed legally by licensed operators. While the UK investigation hasn’t concluded, I would venture that they will be okay with this as a solution.
Now in Europe they are proactively doing the same thing—this is what they refer to as ring-fencing. There were some unlicensed operators that were able to finagle Evolution games that they were profiting off of—and so those are now being eliminated. However, legal revenues do get a little bit pressured as the checks do not always work with 100% accuracy and the lag it introduces can lead to player churn.
This effort started in 1Q25 and will take a full year for them to lap. They started in February of 2025 so by 2Q26 the impact will have fully rolled out (1Q26 will only be impacted with 1 month).
Asia is a different story. In this market the headwind is that operators are stealing their video stream and creating their own application layer to put on top of it. So, a player may think they are playing a legit Evolution game, but it is actually a stolen video feed with buttons layered on top. The operator goes through this trouble because then they do not have to pay Evolution any commission on their gambling revenues. As noted below, it may save them about half of the cost by ripping Evolution off (they still have to pay the hackers).
This manager basically alludes to the fact that it is hard to get law enforcement to act when a lot of the players are playing illegally. (They may be playing at a licensed operator, but that operator is offering the games in a jurisdiction they shouldn’t or the players are VPNing in. How unscrupulous the operators can be runs the full gamut.)
This manager of Playtech based in Asia Pacific further elaborates on the cybercrime. He alleges that very often it is the operators who are co-mingling the use of legitimate feeds with stolen ones. If true, this adds another layer of complexity to stopping the stolen feeds because they do not want to cut off partners who are also generating meaningful revenues for them. It also makes sense why they need a technical solution to this because any direct confrontation is unlikely to yield the results they want (they can simply deny they are doing this and it would be hard to get law enforcement involved).
The sophistication of the streaming feed theft has increased recently, which is what really started weighing on Evolution’s Asia results. However, as recent commentary suggests—and this current quarter’s revenue growth supports—they are starting to meaningfully address the issue.
We think in time they will eventually be able to fully solve it as they have way more resources then the hackers.
Big picture, Evolution continues to be the best live casino provider and it is likely there are a lot more online players in the future than today. Additionally, many markets in the US, South America, and elsewhere are pushing to legalize. While there may always be an illegal market somewhere, most players prefer to play legally when possible. As noted below, players don’t trust websites easily and the unlicensed sites can rip them off with them having no recourse. (Note that not all players know they are on an unlicensed site).
While Evolution is not without risk, ultimately an investor must decide if the potential return is worth it.
At a $85 ADR stock price, Evolution is valued at an EV of ~$16bn. With ~€1.1bn in LTM net profit (backing out the earn out liability reduction), they generated about €5.20 in per share earnings over the past 12 months. This converts to about $6 in TTM EPS for a multiple of 14x. If they can indeed return to growth, many investors will this multiple to be very undemanding.
It is also worth mentioning that in terms of capital allocation, they have been returning more than their earnings to shareholders recently (because they have a ~€0.5bn cash balance). YTD they have bought back about ~1.5% of the company.
However, just like last quarter Martin is unhappy and at some point, investors will need to see an improvement in performance.
As a reminder, we named our research firm Speedwell after the ship that helped ferry passengers to the Mayflower. The idea is that we want to help you take your journey, but ultimately you are on your own in the decisions you make. An investor must judge for themselves whether they believe these returns are worth the potential risks that could materialize with Evolution.
*At the time of this writing, one or more contributors to this report has a position in EVO. Furthermore, accounts one or more contributors advise on may also have a position in EVO. This may change without notice.