Evolution: 2Q25 Business Update
"I am not satisfied"
Welcome to Speedwell Memos. Our main website is SpeedwellResearch.com.
This is a business update on a company we have previously written an in-depth research report on. To read the full research report become a member today. Members get access all of our research reports and all prior updates (most of which are paywalled). You can see a list of all the companies we have written on here.
(Speedwell Members can access a full version of this post here and a PDF here)
2Q25 Update.
Looking at this quarter’s growth of +3.1% y/y versus last quarter’s +3.9% y/y, it may not seem like much to celebrate. However, as a reminder, last quarter was the first quarter they ever reported a contraction in revenue on a sequential basis. This quarter they have at least returned to positive growth, despite ongoing headwinds.
Adjusted for FX though, revenues were +8.8% y/y, an acceleration of 270bps compared to last quarter. Live grew 4% y/y while RNG was flat. They attribute this slower growth in part to one of their largest payouts ever. However, on the call Martin clarified that even without that payout it wouldn’t have been a good quarter for RNG.
There made encouraging comments too that progress was made on the Asia Cyber Attack situation. (We explain in more detail below what was happening with insights provided by a former Evolution executive of 14 years, sourced from AlphaSense. Free AlphaSense trial link here). Asia revenues were +4% y/y and this quarter was the first in a year that revenues grew sequentially.
The self-inflicted pain by ring-fencing European activity resulted in the second consecutive quarter of negative growth. Europe was -6% y/y. This can be expected to be a headwind for three more quarters until they lap their initial ring-fencing efforts. (There was only 2 months of it factored into 1Q25).
As CEO Martin Carlesund explains below, they essentially are now double checking that their games are being played with licensed operators in the proper market. This means they are forgoing revenue from operators who somehow acquired their games (likely from aggregators) and opted to operate illegally.
Illegal online gambling can exist even in markets where gambling is legal because the operator wants to skirt certain laws—like betting limits or deposit limits that make it hard to cater to whales. Martin elaborates in the quote below. (Channelization is just a euphemism for players playing illegally instead of legally).
On the call, Evolution did note that regulations are impacting them more than they expected in Europe. Other markets helped pick up the slack though.
North America was a bright spot with revenues reaccelerating to +23% y/y. Martin emphasized that the live casino market in North America is still very nascent as gamblers are only really used to land-based casinos and online RNG. This should be a tailwind for them for many years to come.
They also struck a partnership with Bally’s Casino in Rhode Island which gives them a footprint in that state. They now have a presence in all 7 states. Furthermore, they renewed and expanded their Hasbro deal to allow the roll out of Monopoly Live to the US. Renewing this deal was important because had they not, there would have been an opportunity for a competitor to steal a top Live Casino game from them.
This is still a big game release year for them with them planning to release 110 games in 2025 (unclear how many they already have).
Turning to profitability, EBITDA margin was slightly pressured at 65.9% as they continue to invest in studios and hire, despite revenue headwinds. They expect a better second half of the year and reiterate their full year margin guidance of 66-68% though.
EPS for the quarter was at €1.22, down €0.06 from last year. TTM EPS is €5.86.
After our call notes below, we give an Evolution business overview and more color on the ring-fencing and cyber-attacks.
Press Release and Call Notes.
Asia
Cyber Attacks
“We continue to address the ongoing issues with cybercrime and the hijacking of our video streams in Asia, where we are continuously moving forward. Other businesses, not only those in Online Gaming, are facing similar challenges, and we know that we are in the absolute technological forefront in defending our intellectual property and our products”
“As we deploy new measures constantly, we are starting to reap some benefits. The revenue for the region is back to growth and we remain very cautiously optimistic for the remainder of 2025”
Philippines Studio opened
Philippines is the first licensed iGaming jurisdiction in Asia
Regulation has switched to the PAGCOR framework after POGOs were made illegal
Europe Ring Fencing
Another quarter of negative growth due to ring-fencing
“maintain that regulation is positive over time”
North America
Momentum remains strong
New Studio in Michigan
Latin America
“Highly optimistic in terms of market opportunities in the medium to long-term, but we also recognize that it will take time for operators as well as for players to get used to the new regulations in Brazil.”
Opened Brazil studio
Partnerships
Expanded Partnership with Hasbro giving them the ability to launch Monopoly Live in the US
Developing 3 new Hasbro IP based Live Casino games
Partnering with Bally’s in Rhode Island, giving them a presence in the state for the first time
Capital Allocation
First half of the year bought back 3.2mn shares
Share purchases + buybacks have amounted to ~€800mn
Guidance
Second half of the year will be stronger
Maintain full year EBITDA guidance of 66-68%
Business Commentary.
Evolution has faced many headwinds and hiccups over the past couple years from the Georgia strike and UK investigation to the on-going Asia Cyber Attacks and proactive EU ring-fencing. All of this has muddled their underlying results.
While investors who were penciling in 20% growth for many years to come may have been too optimistic, few would have thought revenues would contract as they did last quarter. However, Evolution has proved to be resilient and there is light at the end of the tunnel.
Currently the two big factors hampering growth are 1) the Asia Cyber Attacks, and 2) the EU ring-fencing. We will explain in more depth what these both are and then conclude with some final thoughts.
First, it is important to note that everyone who Evolution sells to is a licensed operator or aggregator. There are no exceptions to that.
This is different from whether a market is regulated or unregulated. A regulated market is a market that has laws that make gambling legal. An unregulated market can either be a market that has no gambling laws (so not explicitly legal or illegal) or a market that has laws that make gambling illegal.
So how does their games end up in unregulated markets when all of the operators or aggregators they sell to are licensed? In short, many operators or aggregators do not follow all laws and players will also skirt local laws with VPNs.
Since Evolution is a game supplier, they historically have only been responsible for making sure the party they sell the games to are legally allowed to buy them. There is some minimum diligence they conduct on all customers, but they are not responsible for checking that every player on the customers’ site was accessing it legally.
Evolution would draw an analogy to a slots machine provider and a casino, noting that the slot machine provider only has to make sure the casino is allowed to buy the machine; they are not responsible for whether the casino is properly checking IDs on who plays it.
This has been changing recently as regulators have a hard time regulating operators as they can simply close down shop and disappear, to only reappear under a new name shortly thereafter. Since Evolution has dominated the Live Casino space, regulators are now looking to the suppliers to help ensure the games are being appropriately accessed by an end user in a legal jurisdiction.
Essentially, it is easier for regulators to force the half-dozen or so relevant suppliers to check a customer is accessing a game legally then to go after the hundreds of operators. (This might not do much though if a player is playing through a VPN in which case Evolution actually might not know where the traffic is truly coming from).
At the end of 2024, the UK Gaming Commission found Evolution Games on operators’ sites who were operating illegally. In this case their games were on unlicensed operators’ sites. This was likely because they sold games to a licensed aggregator who then sold them to an unlicensed operator. The UK Gaming Commission basically didn’t accept that and wanted to hold Evolution accountable, nevertheless. As mentioned, this is in part because it is too hard to go after the operators, as this former manager of Evolution noted below.
It seems a compromise is being struck where Evolution will now create a technical solution to check that games are being accessed legally by licensed operators. While the UK investigation hasn’t concluded, I would venture that they will be okay with this as a solution.
Now in Europe they are proactively doing the same thing—this is what they refer to as ring-fencing. There were some unlicensed operators that were able to finagle Evolution games that they were profiting off of—and so those are now being eliminated. However, legal revenues do get a little bit pressured as the checks do not always work with 100% accuracy and the lag it introduces can lead to player churn.
This effort started in 1Q25 and will take a full year for them to lap. They started in February of 2025 so by 2Q26 the impact will have fully rolled out (1Q26 will only be impacted with 1 month).
Asia is a different story...
If you are a Speedwell Member, please click here to read the rest of this post.
Become a Speedwell Member to read the rest of this post and get access to all of our other research, including our 74-page Evolution Research Report.
For further reading, check out our Evolution Extensive Research Report here.
The Synopsis Podcast.
Follow our Podcast below. We have a Company episode just on Evolution (Apple, Spotify).
For those that are new to our podcast, we have four episode formats: “company” episodes that breakdown in-depth each business we write a report on, “dialogue” episodes that cover various business and investing topics, “article” episodes where we read our weekly memos, and “interviews”.
Become a Speedwell Research Member to receive our Evolution report and all of our other research reports, business updates, and Plus members also receive Excels.
We have covered APi Global, Airbnb, Axon, Constellation Software, Copart, Coupang, CoStar Group, Dream Finders Homes, Etsy, Evolution, Floor & Decor, Meta, Perimeter Solutions, Porsche, RH, and Walker & Dunlop, with many more coming each year!
(Many members have gotten their memberships expensed. If you need us to talk with your compliance department to become an approved vendor, please reach out at info@speedwellresearch.com).
*At the time of this writing, one or more contributors to this report has a position in Evolution. Furthermore, accounts one or more contributors advise on may also have a position in Evolution. This may change without notice.