BofA upgrades Sportradar to "buy," cites revenue growth and margin visibility

Investing.com -- BofA Securities in a note dated Tuesday has upgraded Sportradar Holding AG (NASDAQ:SRAD) to "buy" from "underperform" and raised its price objective to $28 from $12. 

The upgrade is based on what analysts describe as “higher confidence in SRAD’s revenue outlook, increasing cost visibility and margin leverage, and option value from the IMG Arena transaction and AI adoption.”

The previous rating was driven by concerns over escalating sports rights costs, which grew at a 35% CAGR over the past three years. 

These costs had been pressuring cash flow and margins. However, BofA now sees this pressure easing. 

With key contracts such as those with the NBA, NHL, MLB and ATP already renewed, Sportradar is expected to benefit from slower growth in rights costs, projected to moderate to high single digits, and improved predictability through straight-line amortization over multi-year deals.

The company’s revenue is projected to grow at a 15% CAGR through 2027, driven by approximately 10% market growth and take rate expansion from upselling new products and services. 

BofA notes that “SRAD’s analyst day outlook implies a +15% CAGR thru 2027, based on 10% underlying market growth and take rate expansion from product upselling to customers.” 

The company has grown in line with the U.S. market and outperformed internationally, with revenue increasing at a 22% CAGR since 2019 versus 18% for the market overall.

Analysts highlighted that Sportradar’s international business, despite operating in mature markets, continues to deliver mid- to high-single-digit organic growth, reflecting strong execution and customer retention. 

The managed trading services (MTS) platform has also been a key driver of growth, with turnover increasing at a 39% CAGR since 2021.

On costs and margins, management expects approximately 100 basis points of annual expense leverage through 2027, primarily from improved cost control, especially in personnel. 

EBITDA is forecasted to grow from €283 million in 2025 to €458 million in 2027, with margins rising from 20% in 2024 to 27% in 2027. 

BofA estimates a 27% EBITDA CAGR over this period, down from 37% over the last three years but still substantial.

The IMG Arena acquisition, announced in March, is expected to be immediately accretive to EBITDA, margins, and free cash flow.

The deal brings a portfolio of rights across 70 rightsholders and 39,000 events, including Wimbledon, the US Open, MLS, and the PGA Tour. BofA projects the acquisition will contribute approximately €125 million in revenue and $30 million in EBITDA annually. 

“The deal is expected to be immediately EBITDA, margin and FCF accretive,” analysts stated, estimating a potential 10% increase in SRAD’s share price once fully reflected in estimates.

Artificial intelligence is seen as another source of operational and revenue upside. Sportradar is aiming for a 50% increase in engineering efficiency by 2028, with up to half of software code expected to be written by AI.

This could reduce costs related to data collection and engineering. On the revenue side, analysts highlight the potential for new AI-powered products that leverage Sportradar’s proprietary data, including conversational interfaces for bettors and teams. 

“We were impressed by the conversational AI tool at SRAD’s Investor Day that allows users to ask for historical data points and an AI chat bot that helps users place bets,” the analysts said.

BofA’s revised valuation model applies a 20x multiple on 2026 estimated EBITDA, up from a prior 10x on 2025 EBITDA.

This shift reflects stronger execution, higher confidence in forward earnings, and a broader peer comparison group that includes software and high-growth media companies.

“We believe the higher multiple is based on SRAD’s strong recent execution, continued growth expectation and more diversified comp set,” the analysts explained.

Key risks identified include low transparency in Sportradar’s international revenue base, potential customer churn, regulatory changes, and a relatively low free cash flow yield compared to peers. 

Nonetheless, BofA views the company’s fundamentals as materially improved and expects the current re-rating in the share price to be sustainable. 

“Coupled with higher conviction in SRAD’s revenue outlook and cost discipline, we believe this should allow the recent re-rating in shares and valuation to be sustainable,” BofA added.