Evolution AB: The Story has Changed

What's happening?!

Evolution AB (Evolution) has long been seen as a growth company. Evolution has been able to grow revenue 41%+ CAGR over the past 10 years. However, last quarter, Evolution reported its first revenue decline of 2-3%.

So what’s happening? What has changed over the last few quarters, and is it still a good investment opportunity? Let’s see…

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Introduction to Evolution AB

Evolution AB is a global supplier of online casino content, streaming live dealer games and producing digital slot titles. The company generates most of its revenue from its Live segment, which accounts for about 90% of total revenue, while RNG (Random Number Generator) products contribute roughly 10%.

The Online Casino Market Explained | The Dutch Investors

Evolution has a clear focus on the Live segment, and it’s by far the market leader in the space. According to a recent Quatr article, the company potentially has 60-80% market share in Europe, and 90% in North America.

Evolution operates as a B2B supplier, providing the technology and infrastructure for online casinos rather than dealing with gamblers directly. This picks and shovels strategy keeps their business capital-light, as they avoid customer acquisition costs and sometimes even have clients fund new studios. By serving the operators rather than taking the gambling risk, they maintain highly efficient operations.

Evolution’s position in the online casino value chain | Quartr

The online casino market is expected to grow by >10% a year, which is a clear tailwind for Evolution as it has the most dominant position in the market. To close off; Evolution’s margins are superb. The company has EBITDA margins topping 60% and net margins of roughly 50%, making it one of the most profitable companies on this planet.

Still, the company is trading at only 11 times earnings and the stock price decreased 27% this year and over 60% from its ATH back in 2021. What’s behind this drop?

Asia stream-hijackers

Evolution first publicly acknowledged cyberattacks in Asia in late 2024, revealing that unauthorized parties had been hijacking and redistributing its live casino streams. CEO Martin Carlesund described it as “someone stealing our product,” comparing it to piracy in the film industry.

The issue affected Evolution’s performance in several Asian markets and forced the company to invest heavily in new security measures. It’s a balancing act: tighter controls means less revenue but less theft, but when you loosen the reins a bit too much, it results in more revenue but also more theft. Carlesund remarked in the last earnings call:

“During the quarter we over-extended our countermeasures and our revenue was affected negatively.”

In an interview with Next, back in July, CEO Carlesund remarked:

“We were caught a little bit off guard by the technology they were using to steal our stream. Now we are gaining traction with the actions we’ve taken.”

Still, it seems hard for Evolution to come up with a fitting solution, while just that seems necessary to get its operations in Asia back on track. The question remains if they will ever find a lasting solution, or if this is just the new reality they’ll have to deal with. We don’t have a clear answer yet.

Asia Revenue Development | The Dutch Investors

Ring-fencing in Europe

In another important region, Europe, things have also changed for the worse. Ring-fencing¹ is taking place, which is ensuring that only players in regulated European markets can access its games.

This clearly hurts revenue in the short term, but it’s an important step to stay compliant with EU gambling regulations and to prevent unlicensed operators from using its content.

The shift from unregulated markets to regulated markets is slow. We don’t expect it’ll hurt revenue too much in the long-term.

Revenue from regulated markets improved slightly, from 40% in Q1 2020 to 46% in Q3 2025. Evolution recently has refused to work with operators targeting players in gray markets, even if it meant losing potential revenue. The good news is that, over time, this should make revenue more stable and predictable. Embracing regulation is a smarter long-term strategy than circumventing it.

Europe Revenue Development | The Dutch Investors

Setbacks in its Georgia studio

At its peak, Evolution’s Georgian site employed an estimated 7,000-8,000 people, making it one of the largest Evolution sites out there. The benefits by operating in Georgia seemed clear:

1. Lower wage levels compared to Western Europe,

2. Fast recruitment of dealers, and

3. Centralized production

This allowed Evolution to launch games at extraordinary speed. Margins benefited, and driven by the high demand, capacity expanded massively. But the scale also brought instability.

Reports of employee dissatisfaction, regulatory pressure, and reputational risk started to surface, eventually leading to a strike of over 4,000 people. Instead of functioning as a key driver of growth, Georgia began to represent operational risk.

Over the past year, Evolution has started to structurally reduce its dependence on Georgia. Through layoffs and redistribution of production, the workforce there has fallen by over 1,000 employees, with headcount now likely closer to 6,000 or below.

Evolution Georgia location | Next.io

North America

Our analyst Bouke wrote in his analysis, back in August 2024, the following about the difference between North America and the rest of the world.

“Erosion of economies of scale in the U.S: In the United States, regulations stipulate that the studio must be located in the same state as the players, which erodes economies of scale. This makes the U.S. market one with lower margins and higher barriers to entry.”

Growth in the U.S. is growing faster than other regions. In the latest quarter, the U.S. accounted for 15% of total revenues and grew 15% Y/Y. All, while it’s two key markets (Europe and Asia, that account for >70% of total revenues) declined both 6.5% Y/Y.

North America development | Evolution AB Q3 2025 update

What hasn’t changed

Clearly, a lot has changed over the past few years. But some big things haven’t changed:

• Margins have stayed roughly the same, with EBITDA-margins at 65% and net margins of 50%. This in itself is a strong sign, as high margins attract competitors, who clearly didn’t succeed in hurting Evolution’s business. Live casino’s stay with Evolution due to its unique and high-quality live gaming portfolio.

• Evolution is still the undisputed market leader in live casino games, as the picture down below shows. Evolution even is so dominant that Playtech, a competitor, started a smear campaign against Evolution. That says something…

  

  Evolution Market Share | from @MarienLechevin

• Martin Carlesund has now been CEO for roughly ten years. While a long tenure in itself is a positive sign, he also reinforced his confidence in the company by significantly increasing his stake in Evolution AB in June 2025, buying shares at around SEK 670, close to today’s share price.

• Shareholder friendly capital allocation. Evolution AB might be described as a very shareholder friendly company, as it distributes 50% of its profits as dividends, and the remaining half largely goes to share buybacks. This decline in stock price is a gift for Evolution AB, being able to buy back stock at a much better price.

Our thoughts 💭

Evolution has been punished, and for good reason. Investors who thought Evolution would grow revenues constant with >10% a year, have learned a hard lesson: be conservative with your assumptions, and invest with a margin of safety. Things can, and will change.

However, if you have confidence the company will have stable market share in this growing market, it is very likely growth will pick up in the coming quarters. While the margins could decrease slightly due to investments in North America and other regions, they are likely to remain superb.

Due to the pessimism in the market, Evolution is, in our view, trading at an unjustified low multiple of 11. When growth will pick up, it’s likely Evolution will get a re-rating of its P/E ratio, which could increase to 15 or higher. For conservative reasons, we work in our scenario analysis below with a slight increase to only 12.

Quantifying the data above in a scenario analysis, an 11% return a year seems reasonable. That makes the stock at these price levels an interesting investment.

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Until the next one!

The Dutch Investors

1. Ring-fencing is the regulatory practice of physically segregating server infrastructure and player pools within a single jurisdiction to prevent them from mixing with global traffic and ensure strict compliance with local laws.