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Can Evolution grow its RNG segment? This is probably one of the biggest questions on many investors’ minds after the supplier presented its full-year 2023 results.

Shares in Evolution jumped more than 6% this morning (1 February) after the supplier reported 16.6% revenue growth in Q4 2023.

Moreover, full-year 2023 revenue hit €1.8bn, a robust 20% increase from 2022, but the downside? 

The supplier’s RNG segment lagged, with live casino dominating at almost 85% of the firm’s total revenue.

The RNG division generated €275.3m in revenue in 2023, which translates to a year-on-year increase of just 2.6%.

Over the past year, Evolution CEO Martin Carlesund repeatedly acknowledged the need for improvement in terms of efficiency and quality in game production for slots and RNG.

However, he also emphasised that the path to Evolution’s envisioned double-digit growth would not be linear.

Regulus Partners analyst Paul Leyland, meanwhile, described Evolution’s RNG performance as “disappointing to the point of embarrassing.”

“From a product standpoint, Evolution is still failing to execute on RNG despite the acquisition of four studios and three years of NetEnt ownership,” he stated in a note to investors.

“Operationally this is unsurprising: NetEnt was badly run, commercially over-priced, and offers largely legacy content,” Leyland added. 

“A self-inflicted RNG problem”

Evolution acquired NetEnt in 2020 for €1.9bn.

Leyland noted that a turnaround “would have required a significant investment in product development and bravery on pricing which no amount of experience in live infrastructure could be used as a guide. 

“Put simply, Evolution was the wrong buyer for NetEnt, in our view,” he said. 

Leyland also described Evolution’s acquisition of NetEnt as a “large part of Evolution’s self-inflicted RNG problem.”

Regulus Partners believes the RNG segment is growing at double digits globally. 

Therefore, the firm highlighted that RNG is not creating any clear synergies for Evolution and “tough questions need to be asked about what value the division is adding to the group and to the sector under Evolution’s ownership.”

Moreover, Leyland added that in the longer term, industry growth will suffer if Evolution continues to fail to deliver segment growth.

He finds this particularly concerning given Evolution’s relative size, valuation, and cash balances, coupled with the “almost uniformly poor performance of its competitors”, which lack a solution to “Evolution’s endemic value destruction.”

Unique games

Evolution today emphasised that 2024 and 2025 are designated as its “product leap years”. 

The company declared its commitment to introducing a broader range of games, exploring new game genres not currently in its portfolio, and investing in unique games tailored for specific markets. 

CEO Carlesund commented during the firm’s earnings call: “The future doesn’t wait for you. You need to run to catch up, and sometimes take a leap. Never stop. Never be complacent.

“Always be paranoid, run faster than anyone else and be a little bit better every day.”

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