An investment in Jumbo Interactive Ltd (ASX: JIN) is beginning to look more attractive to me at these levels, with shares down around 15% over the last five weeks.
JIN share price chart
Jumbo operates through its flagship platform called Oz Lotteries, which facilitates the buying of lottery tickets.
More recently, Jumbo has launched a software-as-service (SaaS) platform called Powered By Jumbo (PBJ), which allows other lottery ticket retailers to use its software model for their own lotteries.
The company additionally provides managed services to assist clients with things like game design, prize procurement and marketing.
What’s been keeping the Jumbo share price down?
Jumbo is a technology company, so its valuation has fallen recently in line with other technology/growth companies on the back of rising bond yields.
Jumbo’s recent half-year results confirmed continued growth across all three of its business segments, but management noted that the number of large jackpots over the period was down 35% on the prior period.
This matters because the quantity and size of jackpots will influence how many people buy tickets, resulting in a smaller or larger commission collected by Jumbo.
What’s to like about Jumbo?
Jumbo has an effective platform used to sell lottery tickets that’s proven to be successful domestically. It’s now essentially providing its platform to other Australian and international lottery operators in the government and charitable sector.
It may take some time to win new contracts and build up its SaaS segment, but this seems less risky compared to a company with a brand new product offering, as there’s a proven track record in the Australian market.
One of Jumbo’s latest contract wins was the St Helena Hospice in the UK, which is due to go live in July 2021. The type of organisations Jumbo is targeting is a big tick for me. Gambling in general is likely to stay due to its addictive nature, but charitable organisations that involve more emotion would provide an extra layer of stickiness to its revenue streams.
Jumbo’s SaaS segment earns a margin between 3% to 9.5% of ticket sales (TTV) and generated a very respectable EBITDA margin of 67.2% in the first half of FY21.
Jumbo’s international launch seems to be going well, albeit fairly slowly, evidenced by various new contract wins and its first UK partner.
If COVID-19 continues to accelerate the adoption of e-commerce, this will hopefully provide a nice ongoing tailwind for Jumbo as it can take advantage of lottery retailers adopting newer technology.
For more reading on Jumbo, check out this article: Are Jumbo Interactive shares about to pop?.