Valuation update: Evolution AB ($EVO)
Our new DCF model shows Evolution AB is significantly undervalued
After a period of explosive growth, Evolution AB has run into multiple headwinds that have impacted its performance over the past year. Proactive but costly regulatory “ring-fencing” in Europe after the investigation of the UK Gambling Commission, has slowed momentum in a key market. The battle against cyberattacks in Asia, though improving, continues to require vigilance. At the same time, sluggish growth in the RNG segment and new studio investments have been impacting profitability.
Yet, Evolution’s management is proving adept at navigating these challenges. The Q2 results, while not spectacular, beat expectations and showed promising signs of a steady hand at the helm. North America is accelerating, becoming a powerful engine driving the company forward with 23% YoY growth, and Asia is already returning to positive territory. Additionally, in an effort to protect profitability, management is consolidating some studio operations and rebalancing its employee base away from higher-cost regions. With “cautious optimism,” management expects a stronger second half, reaffirming its full-year EBITDA guidance of 66%-68%.
This mixed picture of clear headwinds in some regions and strong tailwinds in others creates a fascinating puzzle for investors. The recent turbulence has made the stock cheaper, but is the market being overly pessimistic about the company’s ability to weather the storm? That brings us to the core of this update. Following our review of the latest quarter (Evolution Q2’25: Navigating Headwinds with Cautious Optimism), it’s time to reassess our valuation of Evolution AB. Let’s dive into the numbers and see what the company is truly worth today.