Alger, an investment management firm, published its “Alger Small Cap Focus Fund” fourth quarter 2021 investor letter – a copy of which can be downloaded here. During the fourth quarter, the largest portfolio sector weightings were Health Care and Information Technology. The largest sector overweight was Health Care. The portfolio had no exposure to the Financials, Materials, Real Estate, or Utilities sectors. Class A shares of the Alger Small Cap Focus Fund underperformed the Russell 2000 Growth Index during the fourth quarter of 2021. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Alger Small Cap Focus Fund, in its Q4 2021 investor letter, mentioned Genius Sports Limited (NYSE: GENI) and discussed its stance on the firm. Genius Sports Limited is a London, United Kingdom-based sports data and technology company with a $1.1 billion market capitalization. GENI delivered a -21.97% return since the beginning of the year, while its 12-month returns are down by -68.08%. The stock closed at $5.93 per share on February 11, 2022.
Here is what Alger Small Cap Focus Fund has to say about Genius Sports Limited in its Q4 2021 investor letter:
“Genius Sports provides online sportsbooks with data from sports leagues. We view it as a picks-and-shovels sports betting company, so it isn’t dependent on the success of an individual gambling operator. The global online sports betting (OSB) market is forecast to grow from approximately $31 billion in gross gaming revenue (GGR) in 2020 to approximately $65 billion in 2025, a compound annual growth rate of 16%, and we believe Genius is positioned to increase its market share. The company has a 40% to 50% market share of sports events currently and an ambitious target to reach a 5% take-rate on this global gaming market compared to its current take-rate of 1.75%. The take-rate is the portion of gross revenues generated by online gambling operators that Genius receives.
Genius is levered to the U.S. sports betting total addressable market given the company’s NFL data contract and in our view is well positioned to benefit from structuring of legalized OSB in New York. We believe the structure is unfavorable for online gambling operators, but could potentially be positive for providers of sports data, especially given that New York mandates the use of official data. In our view, Genius is also well positioned to benefit from the increasing importance of official data, a growing ad-tech business and the potential to cross sell additional services to sportsbooks, such as managing risk and trading of betting markets and streaming services. We see 2022 and 2023 as big launch years for online sports betting (i.e., more states legalizing OSB), which could benefit Genius because the company receives a share of operator gross gaming revenue and can monetize its services with its ad-tech business).
Shares of Genius Sports were volatile during the fourth quarter due to concerns about expiry of a pre-IPO shareholder lockup that occurred in mid-November following the release of thirdquarter results. When releasing results, the company lowered its earnings before interest, taxes, depreciation and amortization (EBITDA) guidance for 2022 to just “breakeven” given increased investments of $30 million to $40 million. A selloff of high-growth stocks in November and December also hurt the performance of Genius Sports shares. While 2022 and 2023 are likely to involve additional investments by OSB operators to support marketing as more states legalize online gaming, we think Genius Sports is currently well positioned to benefit from the expanding U.S. total addressable market and the company’s increased marketing.”
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Our calculations show that Genius Sports Limited (NYSE: GENI) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. GENI was in 31 hedge fund portfolios at the end of the third quarter of 2021, compared to 39 funds in the previous quarter. Genius Sports Limited (NYSE: GENI) delivered a -62.77% return in the past 3 months.
In December 2021, we also shared another hedge fund’s views on GENI in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
