Buried within Gambling.com Group Limited's recent Q1 2024 earnings call lies a subtle shift, a whisper of change that could signal a seismic eruption in their 2025 profitability. While the market fixated on the immediate impact of Google's new policy targeting legacy media partnerships, a shrewd investor might recognize this not as a setback, but a springboard for Gambling.com's owned and operated websites.

The company, known for its performance marketing prowess in the online gambling sphere, has always maintained a dual strategy. On one hand, they expertly leverage media partnerships with established brands like McClatchy, The Independent, and Gannett, utilizing their high-traffic domains to drive customer acquisition. On the other, they meticulously cultivate a portfolio of powerhouse brands in the online gambling space, names like Gambling.com, RotoWire.com, and Bookies.com. These are not mere websites; they are digital fortresses, strategically positioned at the heart of the online gambling landscape.

Google's new policy, while dealing a blow to media partnerships across the industry, has inadvertently cleared the battlefield for these very brands. With legacy media websites taking a hit in Google's search results, Gambling.com's owned and operated sites are poised to capture a greater share of the organic traffic pie. The company's CEO, Charles Gillespie, confirmed this trend, noting a visible improvement in search visibility for their key assets.

Here's where the hidden goldmine comes into play. While Gambling.com revised their 2024 revenue guidance downwards to account for the shrinking media partnership revenue stream, they have boldly held firm on their 2025 adjusted EBITDA expectations. This, despite anticipating substantially fewer state launches in the US, a traditional driver of growth.

Let's dissect this. Gambling.com, projecting an adjusted EBITDA of approximately $42 million for 2024, is aiming for a 25% year-on-year growth to reach around $55 million in 2025. Their confidence stems from the increased profitability of their owned and operated websites, which enjoy a 100% gross margin compared to the lower margins associated with media partnerships. The shift in traffic towards these higher-margin assets is expected to offset the revenue decline from the media side, ultimately leading to a surge in EBITDA.

"This hypothesis is further bolstered by Gambling.com's strategic acquisitions, notably the recent purchase of Freebets.com and its associated European assets. This move strengthens their presence in the UK and Ireland and significantly expands their footprint in the rest of Europe, diversifying their revenue streams beyond the US market. The company anticipates this acquisition to be immediately accretive to EBITDA and free cash flow, further enhancing their profitability."

What does this mean for the astute investor? It means that while others are distracted by the short-term turbulence, a unique opportunity has arisen. Gambling.com, with its robust portfolio of high-margin websites, is positioned to capitalize on the shifting digital landscape. Google's new policy, intended to curb what they deem "site reputation abuse", has inadvertently paved the way for a concentrated flow of organic traffic towards Gambling.com's own assets.

Projected Adjusted EBITDA Growth

The following chart illustrates Gambling.com's projected Adjusted EBITDA growth based on their Q1 2024 earnings call.

The company's steadfast commitment to their 2025 EBITDA projections, despite the anticipated revenue headwinds, speaks volumes about the confidence they have in this strategic shift. This, coupled with their expansion into new markets and strategic acquisitions, suggests that Gambling.com is not just weathering the storm, but riding the wave towards a potentially explosive 2025.

"Fun Fact: Did you know that Gambling.com's co-founders, Charles Gillespie and Kevin McCrystle, started the business while studying at the University of North Carolina at Chapel Hill? The recent launch of online sports betting in North Carolina, a market they expect to be one of the strongest in the US, marks a full-circle moment for these entrepreneurial visionaries."