Evolution is a market leader in live casino gaming, leveraging proprietary technology, a global studio network, and continuous innovation to drive growth. With strong tailwinds from the expanding online casino market and strategic investments in new studios and game development, the company is well-positioned for the future. However, risks such as cyberattacks, regulatory challenges, and customer concentration remain. The question is: Should Evolution be part of your portfolio?
This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.
For full disclosure, I should start by mentioning that at the time of writing this analysis, I do own shares in Evolution. If you would like to see the stocks in my portfolio or copy my portfolio, you can do so on eToro, You can find instructions on how to do this here. If you want to purchase shares (or fractional shares) of Evolution, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started with investing with as little as $50.
The Business
Evolution, headquartered in Sweden, is the global leader in B2B live casino solutions, specializing in live dealer games, interactive game shows, and online slots. Founded in 2006, the company has established itself as the dominant force in live casino gaming, providing cutting-edge technology and seamless gaming experiences to over 600 operators worldwide. Live casino, Evolution’s largest revenue driver, accounts for 86 percent of total revenue. This segment includes real-time blackjack, roulette, baccarat, and game-show-style offerings streamed from state-of-the-art studios. Growth in this area has been driven by the rising demand for immersive and interactive gaming experiences, as well as Evolution’s continuous innovation in game design and streaming technology. The company’s unique game show category, featuring titles like Crazy Time and Monopoly Live, has broadened its appeal beyond traditional casino players, further strengthening its market leadership. The RNG and online slots division, representing 14 percent of total revenue, expands Evolution’s portfolio with a diverse range of slot games and random-number-generated (RNG) table games. Through strategic acquisitions of NetEnt, Red Tiger Gaming, and Big Time Gaming, Evolution has built a strong presence in the slot market, leveraging its expertise in high-quality content development and game mechanics. This segment allows the company to cross-sell products to its operator partners, enhancing overall revenue potential. Evolution has built a strong moat through its proprietary technology, global studio network, and first-mover advantage in live casino. The company’s scalable B2B model, where operators integrate Evolution’s games into their platforms, creates high switching costs, ensuring long-term customer relationships. With an industry-leading live casino platform, advanced streaming capabilities, and deep expertise in regulated markets, Evolution continues to widen its lead over competitors. The company maintains a highly profitable business model, driven by high-margin revenue streams from commission-based agreements and fixed table fees. Its ability to scale efficiently while maintaining operational excellence has resulted in industry-leading margins. Evolution operates multiple live studios across key markets, ensuring localized gaming experiences and regulatory compliance, both of which serve as significant barriers to entry for competitors.
Management
Martin Carlesund is the CEO of Evolution. He joined the company in 2015 and became the CEO in 2017. Before his tenure at Evolution AB, Martin Carlesund built extensive experience across various industries. He served as CEO of Highlight Media Group, a prominent gaming affiliate network, and held leadership positions at Eniro, overseeing operations in both Sweden and Finland. His educational background includes an MSc in Finance, complemented by studies in computer science, law, and mathematics at institutions such as the University of Borås, the Gothenburg School of Economics, and Linköping University. Under Martin Carlesund’s leadership, Evolution AB has solidified its position as the dominant force in live casino gaming. He is recognized for his ambitious vision and relentless drive, aiming to make Evolution AB "the best company in the world." His leadership style emphasizes humility, directness, and a commitment to continuous improvement. Martin Carlesund fosters a culture where top talent is attracted, challenged, and empowered to innovate, driving the company’s success. Colleagues and industry peers describe Martin Carlesund as a dynamic leader who combines strategic vision with operational excellence. His approach to leadership involves setting ambitious goals while maintaining a humble demeanor and fostering a collaborative environment where employees are encouraged to excel. This philosophy has been instrumental in Evolution AB’s growth and its ability to stay ahead in a competitive market. Martin Carlesund’s tenure at Evolution AB has been marked by significant milestones, including the company's listing on Nasdaq Nordic and the launch of innovative products that have redefined the live casino experience. His strategic foresight and commitment to excellence continue to position Evolution AB for sustained growth in the global gaming industry. I believe he is the right person to lead Evolution AB forward, ensuring its continued success and market leadership.
The Numbers
The first metric to investigate is the return on invested capital (ROIC). Our criterion requires a 10-year history with all figures exceeding 10% annually. Evolution has consistently achieved a ROIC above 10% in every year over the past decade. ROIC decreased significantly in 2020, primarily due to the SEK 19,6 billion acquisition of NetEnt, a digital entertainment gaming provider. Following the acquisition, Evolution shut down NetEnt’s live casino division due to lack of profitability. The integration came with one-time restructuring costs, including layoffs and the closure of redundant operations, which temporarily reduced short-term earnings. Additionally, NetEnt’s business model, which focuses on RNG slots, operates at slightly lower margins than Evolution’s core live casino business. This initially weighed on ROIC, as Evolution absorbed a less efficient business. However, as Evolution successfully integrated NetEnt, it unlocked synergies that improved operational efficiencies and leveraged its existing customer base to drive cross-selling opportunities. As a result, ROIC increased in 2021, 2022, and 2023. ROIC declined slightly in 2024, partly due to higher capital expenditures and a cyberattack/fraud case in Asia, which we will discuss later. Overall, I am not concerned about the temporary decrease in ROIC. Given Evolution’s strong execution in past acquisitions and operational efficiency, I expect ROIC to continue improving in the years ahead as synergies materialize further.
The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. I don’t have the growth rate for 2015, as Evolution made its IPO in March of that year. Since then, Evolution has increased its equity every year, which is very encouraging. The large increase in 2020 was due to the acquisition of NetEnt. While 2024 was a challenging year for Evolution, it is reassuring that the company still managed to grow its equity year over year, even though the growth rate was lower than usual. Overall, I find these numbers very encouraging.
Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Evolution has delivered positive free cash flow every year since its IPO, which is very encouraging. Even more impressive is that Evolution has consistently increased its free cash flow each year, demonstrating the quality and scalability of its business model. This is particularly noteworthy in 2024, as the company significantly increased capital expenditures from 2023 to 2024. Management has indicated that Evolution is currently in a heavy expansion phase, with capital expenditures allocated toward launching new games and opening new studios. Looking ahead, management expects capital expenditures in 2025 to remain at a similar level as in 2024. As a result, free cash flow should continue to grow as Evolution expands, benefiting investors. Management has stated that around 100 percent of free cash flow will be returned to shareholders through dividends and share repurchases. The levered free cash flow margin declined in 2024, partly due to higher capital expenditures and the cyberattack/fraud case in Asia. However, management has reiterated that, in the longer term, margin expansion remains a key opportunity. Meanwhile, free cash flow yield is at its highest level ever, suggesting that Evolution’s shares are currently trading at attractive valuation levels. We will revisit this later in the analysis.
Debt
Another important aspect to consider is debt. It is crucial to assess whether a business has a manageable level of debt that can be repaid within a three-year period, calculated by dividing total long-term debt by earnings. Upon analyzing Evolution’s financials, the company currently has no debt, making it a non-issue for investors. In fact, Evolution has remained debt-free since 2018, reinforcing the company’s strong financial position. Given this track record, it is unlikely that debt will pose a concern in the future.
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Risks
Cyberattacks and fraud pose a significant risk to Evolution, particularly in Asia, due to the hijacking of its video streams, which directly impacts revenue growth, margins, and long-term business integrity. The unauthorized use of Evolution’s live casino streams allows some operators to bypass official agreements and access the product without paying. As a result, revenue growth has slowed, with the company adding EUR 265 million in revenue in 2024 compared to the usual EUR 300 million per year. Management has stated that this decline is directly linked to the cyberattacks in Asia, making it a material concern for financial performance. The issue is also affecting Evolution’s margins, with management explicitly stating that margins will remain lower until the problem is resolved. This suggests that either lost revenue from Asia is disproportionately high-margin or that the company is investing heavily in countermeasures, increasing operational costs in the short term. Evolution has deployed extensive security measures to prevent unauthorized stream hijacking and strengthen its network, likely resulting in higher cybersecurity and compliance expenses. Another concern is that if the issue is not resolved, it could spread to other regions. While management has confirmed that the cyberattacks are currently concentrated in Asia, there is no guarantee that they will remain contained. If the problem expands, it could threaten Evolution’s business model in other key markets, further impacting growth. Cyberattacks and fraud remain serious challenges for Evolution, affecting both revenue and profitability. While management is actively working to resolve the issue, uncertainty around the timeline for resolution and the potential for further disruptions remain key risks.
Regulatory risks pose a significant challenge for Evolution due to the constantly evolving legal landscape surrounding online gaming. As more countries introduce national regulations for online casinos, Evolution must continuously adapt to comply with new requirements, which can impact its growth, profitability, and product offerings. One of the key risks stems from the complexity of global compliance. Evolution operates as a B2B provider and holds licenses in several jurisdictions, which means it must navigate different regulatory frameworks that can change unexpectedly. Governments may impose new licensing requirements, restrict certain gaming activities, or increase compliance costs. Each jurisdiction enforces its own set of rules, making it more challenging for Evolution to maintain uniform operations across all markets. Another concern is market restrictions. While Evolution has historically operated in open internet environments, regulators are now increasingly pushing for internet restrictions and blocking measures. This shift could limit access to certain markets, forcing Evolution to adjust its business model to comply with country-specific rules. In the U.K., for example, regulators have introduced ring-fencing measures, requiring Evolution to implement additional compliance steps. The ongoing review by the U.K. Gambling Commission is another example of regulatory uncertainty. While the U.K. is not one of Evolution’s largest markets, the outcome of this investigation could have broader implications. In a worst-case scenario where Evolution loses its U.K. license, it could lead to reputational damage and potentially impact its ability to maintain or secure licenses in other regulated markets, as many regulators assess a company’s compliance history across multiple jurisdictions.
Customer concentration presents a notable risk for Evolution due to its reliance on a small number of large operators for a significant portion of its revenue. In 2024, the company’s largest customer accounted for 13 percent of total revenue, while the top five customers collectively contributed 46 percent, marking an increase from 41 percent in 2023 and significantly higher than previous years. This level of concentration means that losing even a single major customer could materially impact revenue and profitability. A high concentration of revenue among a few key customers limits Evolution’s ability to diversify risk. If one of its largest clients were to reduce its engagement with Evolution’s platform - whether due to regulatory issues, competitive shifts, or internal strategic decisions - it could result in a sudden revenue decline. Additionally, large customers often have greater bargaining power, which may lead to pricing pressure, making it more challenging for Evolution to maintain its high-margin business model. As Evolution continues expanding into regulated markets, customer concentration may gradually decline over time, but in the near term, the risk remains elevated. While having strong relationships with major gaming operators is a competitive advantage, it also increases the company’s exposure to changes in key customer strategies, financial health, and market dynamics. Management has acknowledged that customer concentration is currently at a high mark and may decrease slightly in the future. However, the fact that the top five customers have increased their share of total revenue over the past few years suggests that Evolution’s growth has been increasingly dependent on a smaller group of key players.
Reasons to invest
The growth of the online casino market is a key reason to invest in Evolution, as the industry continues to expand globally, supported by strong underlying demand and long-term structural trends. Evolution is well-positioned to capitalize on this growth as one of the market leaders in live casino and online gaming solutions. Online casino adoption is still in its early stages in many regions, presenting significant untapped potential. The transition from land-based casinos to online platforms is a long-term shift, driven by younger generations who increasingly prefer digital gaming experiences over physical casino visits. Management has emphasized that while online gaming currently accounts for around 20 percent of the total gaming market, this share is expected to grow over time, eventually surpassing land-based casinos. Live casino has been one of the fastest-growing segments within the online casino industry, and the overall market trajectory remains strong, with stable development across all regions. The continued adoption of mobile gaming has been another major driver of online casino growth. As mobile technology improves, with faster internet speeds and enhanced user experiences, this trend is expected to accelerate, further benefiting Evolution’s business. The company also benefits from the increasing number of land-based casinos seeking to establish an online presence. Many traditional casinos recognize that online gaming is necessary for future growth, and Evolution has positioned itself as a key partner in this transition. The company already collaborates with land-based operators in multiple regions, and demand from this segment is expected to continue rising.
Investing in new studios is a key reason to invest in Evolution, as it enables the company to scale its operations, meet growing demand, and strengthen its market position in both established and emerging regions. With live casino being a highly localized and operationally complex product, expanding the studio network ensures that Evolution can continue delivering high-quality gaming experiences while capturing new growth opportunities. Evolution has maintained strong momentum in studio expansion, with major projects in Brazil and the Philippines set for 2025, alongside plans to open a total of three to four new studios throughout the year. These investments support Evolution’s ability to diversify geographically, reducing reliance on any single region while expanding in high-growth markets. The new studio in Colombia, for example, has already shown strong growth, and further investments in Latin America will help meet demand from Spanish- and English-speaking players in the region. The company's decision to increase table capacity is another important factor in its expansion strategy. Evolution has acknowledged that current capacity is still not enough to meet demand, reinforcing the need for continued investment in studio infrastructure. More studios and tables allow Evolution to scale operations efficiently, ensuring that operators can offer a broader range of live casino experiences to their customers. As demand for live casino continues to grow, Evolution’s ability to expand, diversify, and optimize its studio network strengthens its position as the market leader. The ongoing expansion in 2025 reflects a commitment to future growth and signals confidence in the long-term potential of the live casino industry.
Product innovation is a key reason to invest in Evolution, as the company continues to lead the industry by developing new, engaging gaming experiences that attract both operators and players. Evolution has built its success on continuous innovation, ensuring that its games remain exciting, visually appealing, and tailored to changing player preferences. The company’s ability to consistently launch high-quality games has strengthened its position as a market leader in live casino and online gaming solutions. Evolution’s Product Leap initiative has driven a wave of new releases, with 2025 set to be its most ambitious year yet. The company plans to add 110 new games to its portfolio, focusing on both global hits and region-specific offerings, such as dedicated RNG games for the U.S. market. This expansion ensures that Evolution stays ahead of the competition by continuously refreshing its portfolio. The company’s 2024 releases, including Lightning Storm, have already gained strong traction, demonstrating the impact of Evolution’s approach to game development. Evolution recognizes that today’s players have short attention spans and demand high levels of entertainment, similar to viral content on social media platforms. By incorporating dynamic visuals, immersive animations, and interactive mechanics, Evolution creates games that not only attract players but also keep them engaged for longer periods. Live casino games with new mechanics and hybrid elements are a major focus for Evolution. The company has successfully blended live casino with RNG mechanics, as seen in games like Stock Market and Race Track, creating fresh experiences that appeal to a broader audience. Evolution’s commitment to innovation supports long-term growth by expanding its player base, increasing engagement, and reinforcing its reputation as the most forward-thinking company in the online casino industry.
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Valuation
Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators.
The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 67,74, which is from 2024. I have selected a projected future EPS growth rate of 10%. Finbox expects EPS to grow by 10,3% a year in the next five years. Additionally, I have selected a projected future P/E ratio of 20, which is twice the growth rate. This decision is based on Evolution's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be SEK 868,61. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Evolution at a price of SEK 434,30 (or lower, obviously) if we use the Margin of Safety price.
The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 14.912, and capital expenditures were 749. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 524 in our calculations. The tax provision was 2.234. We have 206,6 outstanding shares. Hence, the calculation will be as follows: (14.912 – 524 + 2.234) / 206,6 x 10 = SEK 804,55 in Ten Cap price.
The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Evolution's Free Cash Flow Per Share at SEK 68,57 and a growth rate of 10%, if you want to recoup your investment in 8 years, the Payback Time price is SEK 862,57.
Conclusion
I believe Evolution is an intriguing company with strong management. The company has built a durable moat through its proprietary technology, global studio network, and first-mover advantage in live casino, which creates high switching costs and ensures long-term customer relationships. Evolution has consistently achieved a high return on invested capital, though ROIC declined significantly in 2020 due to acquisitions. However, I expect it to improve moving forward. The company has also generated positive free cash flow every year since its IPO, with strong free cash flow margins, which is very encouraging. Cyberattacks and fraud pose a significant risk by enabling unauthorized access to Evolution’s live casino streams, particularly in Asia, which has slowed revenue growth and pressured margins. If not resolved, the issue could spread to other regions. Regulatory risks also remain a challenge, as shifting legal requirements across multiple jurisdictions could impact growth, profitability, and market access. Increased compliance costs, market restrictions, and potential licensing issues - such as the ongoing review in the U.K.- create uncertainty and may affect Evolution’s ability to operate in key regions. Customer concentration is another risk, as a significant portion of Evolution’s revenue comes from a small number of large operators, with the top five customers accounting for 46 percent of total revenue in 2024. Losing a major client or facing pricing pressure from key customers could materially impact revenue and profitability. Despite these risks, the growth of the online casino market presents a significant opportunity, driven by increasing digital adoption and the transition from land-based to online gaming. Investing in new studios allows Evolution to scale its operations, meet rising demand, and strengthen its market position in both established and emerging regions. Additionally, product innovation remains a key advantage, as the company continuously develops engaging, high-quality games that attract both operators and players. I believe there are many reasons to like Evolution, and buying shares below the Payback Time price of SEK 862 could be a strong long-term investment.
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