Evolution reported revenue of EUR475m and EBITDA of EUR337m for Q4 2023 which was close to our forecast of EUR479m and EUR337m respectively. Revenue per segment was in line with our expectations with Live coming in at EUR408m (we estimated EUR406m) and RNG at EUR70m (we estimated EUR71m). The revenue mix per region was slightly more tilted to Europe than expected which saw growth of 9% while we estimated 7%. North America was also slightly stronger than expected, which we view positively as the region has been weaker than expected in previous quarters. The only negative deviation in the report was weaker than expected growth in LatAm and Other regions. The table below illustrates the Q4-results outcome compared to our estimates.

Evolution’s solid year-end performance in Europe, Asia and North America builds confidence in the growth outlook for 2024 in our view. The growth deceleration in Asia looks to be stabilizing and the company highlights that it continues to be a market with huge long-term potential. Evolution also looks to be improving the earlier imbalance between customer demand and its table supply with increased studio capacity and improved recruitment pace. Evolution continues to comment that it sees untapped growth potential in Europe which it should be able to capture with increased studio capacity.

While growth in North America will continue to be dependent on state regulation, the company saw good momentum in Q4 supported by new game launches, suggesting growth potential from currently regulated states as well. Coming to LatAm which saw softer growth than expected in the quarter, this looks to be partly related to the regulation of the Brazilian market where growth likely will return as the regulated market launches later during the year. Finally, the company comments that its pipeline of games will see a product leap during 2024-25, further supporting the overall growth outlook.

The company’s EBITDA-margin guidance of 69-71% suggests that profit growth should be strong as well. Evolution expects to achieve stable profitability despite increasing studio investments and recruitment pace, illustrating the solid operating leverage in the business model. Still, the company also commented that profitability will likely be at the lower end in H1 2024 and improve in H2 2024. We leave our topline estimates largely unchanged while EBITDA 2024-25E is increased slightly by c1%. The tables below summarize our revenue forecasts per segment and region together with group key financials for 2021-26E.

With limited estimate changes our valuation range remains largely unchanged as well although we slightly raise our base case to SEK1,550 (SEK1,500) while the new bull case is SEK2,350 (SEK2,300) and the bear case SEK1,150 (SEK1,100). Evolution currently trades at 17x 2024E EBITDA while our base case implies 19x and the historical average has been around 22x NTM EV/EBITDA. The table below shows key assumptions for the valuation scenarios.