Executive Summary / Key Takeaways

• Codere Online is demonstrating a clear pivot towards profitable growth, marked by five consecutive quarters of positive adjusted EBITDA, driven by strong performance in its core markets of Mexico and Spain.
• Mexico is the primary growth engine, exhibiting robust underlying expansion (23% constant currency NGR growth in Q2 2025) despite significant Mexican peso devaluation headwinds, with strategic investments targeting the 2026 World Cup.
• The company maintains a disciplined capital allocation strategy, evidenced by a $5 million share buyback plan and a focus on investments with proven high returns, primarily in its established markets.
• While facing challenges like the new VAT in Colombia and a more competitive Spanish market, Codere Online's localized operational expertise and platform optimization are proving resilient.
• Management's 2025 guidance projects net gaming revenue between €220 million and €230 million and adjusted EBITDA of €10 million to €15 million, signaling confidence in continued profitability and strategic execution.

The Digital Arena: Codere Online's Strategic Foundation and Competitive Edge

Codere Online Luxembourg, S.A. (CDRO) stands as a prominent online casino gaming and sports betting operator, primarily carving out its niche in the Spanish-speaking markets of Europe and Latin America, including Spain, Mexico, Colombia, Panama, and Argentina. The company's strategic journey has been one of focused market penetration and disciplined growth, evolving from earlier "experiments" like its exit from the Italian market prior to going public, which underscored the importance of established brand presence and proprietary technology. This history has shaped a current strategy centered on leveraging local expertise, optimizing unit economics, and building strong brand loyalty in its core geographies.

In the dynamic global online gaming industry, Codere Online operates amidst formidable competitors. Giants like DraftKings (DKNG), Flutter Entertainment (FLUT), and Entain (GMV) command significant scale and technological prowess. Compared to these larger rivals, Codere Online differentiates itself through its deep regulatory understanding and localized operational strategies, particularly in Latin America. While DraftKings and Flutter often lead in cutting-edge user interface innovation and broader marketing reach, Codere Online's strength lies in tailoring its offerings to regional preferences and navigating complex local regulatory landscapes, which can translate into more efficient customer acquisition and stronger retention in its specific markets.

Codere Online's competitive advantage is further bolstered by its continuous platform optimization and a focus on localized user experience. While the company does not detail a single, named "core differentiated technology" with quantifiable metrics like some industry leaders, its ongoing "product improvements" in markets like Panama and efforts to enhance "functionality on the product front, especially payments that's critical in Latin America" are central to its strategy. This emphasis on robust, regionally adapted payment solutions and proprietary localized user interfaces is crucial for fostering customer trust and operational efficiency in diverse markets. These technological adaptations, though not always headline-grabbing, contribute directly to customer loyalty and streamline operations, forming a practical moat against competitors who may offer more generic global platforms. The company acknowledges broader industry trends, such as the increasing demand for AI-driven personalization in gaming, and while it may lag larger rivals in the speed of adopting advanced AI integrations, its strategic intent remains focused on leveraging technology to enhance market penetration and customer retention.

Operational Momentum and Financial Performance

Codere Online has successfully transitioned to a phase of consistent profitability, reporting positive adjusted EBITDA for five consecutive quarters. In the second quarter of 2025, consolidated net gaming revenue (NGR) was €55 million, roughly flat year-over-year. However, this figure was significantly impacted by a weaker Mexican peso. In constant currency terms, NGR would have been nearly €61 million, representing a robust 12% increase over the prior year period. This growth was primarily driven by a 7% increase in average monthly active customers, partially offset by a 5% decrease in average monthly spend per active customer, largely due to the Mexican peso's devaluation.

The casino segment continues to be a significant contributor, accounting for 61% of total NGR in Q2 2025, reflecting a stabilization of the overall mix around 60% casino following an upward trend in recent years. Adjusted EBITDA for Q2 2025 reached €2.3 million, with Spain contributing €6.3 million, a 5% increase year-over-year. Mexico, despite being a priority investment market, was slightly negative in adjusted EBITDA due to increased marketing spend around the Club World Cup and its sponsorship of Rayados de Monterrey.

Mexico remains the company's primary growth engine, demonstrating impressive underlying strength. In Q2 2025, Mexico's NGR was €29 million, up 3% year-over-year. Crucially, the Mexican peso devalued by over 19% in the quarter, resulting in a substantial €5.7 million negative impact on NGR—the highest quarterly impact since the federal elections in June 2024. On a constant currency basis, Mexico's NGR would have surged by 23%. The market saw a significant 36% increase in average monthly active customers to 85,000 compared to Q2 2024, albeit with lower player values but also lower upfront acquisition costs. This growth validates the company's sustained marketing investment in the region, particularly as it builds scale ahead of the 2026 World Cup, which Mexico will co-host.

Spain, another core market, saw NGR remain flat at €22 million in Q2 2025. This reflected a slightly higher spend per active customer, offset by a 3% decline in active customers, as the company adopted a more selective approach to promotional activity in a competitive landscape influenced by the reintroduction of welcome bonuses. Management believes that while the market has become more competitive, unit economics remain "very attractive," transitioning from a "great market to a very good market."

Other Latin American markets present a mixed picture. Colombia's NGR was €1.6 million lower in Q2 2025 due to the introduction of a value-added tax (VAT) on player deposits, which management describes as a "massive tax" making operations "very hard". In response, Codere Online has scaled back operations to maintain a breakeven point. Conversely, Panama delivered €0.8 million in higher NGR, doubling its revenue year-over-year, attributed to recent product improvements. Argentina, however, continues to be constrained by the inability to secure a province-level license, limiting growth to the City of Buenos Aires.

Customer acquisition efforts show a dynamic approach. In Q1 2025, first-time depositors (FTDs) reached 91,000, a 21% increase year-over-year, with an average CPA of approximately €200, returning to 2023 levels. This reflects successful testing of new acquisition channels, though some initially yielded lower player values alongside lower acquisition costs, prompting continuous optimization. The company's focus on retention and reactivation of existing customers also contributed to a 6% increase in active customers in Q4 2024, despite a 10% drop in FTDs.

Capital Allocation and Future Outlook

Codere Online's financial health is underpinned by a growing cash position and a disciplined approach to capital allocation. As of June 30, 2025, the company held €45 million in total cash, with approximately €41 million available. In the first half of 2025, €7.5 million of available cash was generated, partially offset by a €2.1 million negative FX impact. The company's net working capital position, at negative €24 million or around 11% of LTM NGR, is considered a normalized level.

In a move to enhance shareholder value, the Board approved a one-year share buyback plan for up to $5 million, with approximately €700,000 already repurchased by July 29, 2025. Management views this plan as appropriate given current cash and expected cash flow generation, balancing investment in the business with shareholder support. Discussions regarding further share repurchases are ongoing at the Board level, indicating a proactive stance on capital deployment. The company also holds a "material amount" of Net Operating Losses (NOLs) that would be relevant in the context of future profitability or potential transactions.

Looking ahead, Codere Online has reiterated its 2025 guidance, expecting net gaming revenue between €220 million and €230 million and adjusted EBITDA in the range of €10 million to €15 million. This outlook, while appearing conservative compared to past growth rates, prudently accounts for anticipated headwinds, including the continued impact of the weaker Mexican peso in the first half of 2025, the new tax on deposits in Colombia, and the competitive promotional environment in Spain.

A key assumption for achieving higher EBITDA in the second half of 2025 is a planned reduction in marketing spend during that period, coupled with a positive NGR outlook and sustained strong returns from Mexico. The company also anticipates a more favorable evolution of the Mexican peso towards year-end than initially expected. Furthermore, the rolling off of the River Plate sponsorship in Argentina is expected to mitigate EBITDA impact in that market, with the goal of reaching breakeven or better. Mexico remains a strategic priority for marketing investment, with the company aiming to capitalize on the 2026 World Cup to drive further scale and growth.

Risks and Challenges

Despite its positive trajectory, Codere Online faces several pertinent risks. The significant volatility of the Mexican peso continues to be a major headwind, directly impacting reported Euro-denominated revenues and profitability. While the company benefits from a natural hedge due to peso-denominated costs, the magnitude of devaluation can still obscure underlying nominal growth and affect cash flow conversion. Management has indicated that while hedging has not been a focus historically, it may be considered in the medium to long term as Mexican operations become more profitable.

The regulatory environment in Colombia poses a substantial challenge. The recently introduced VAT on player deposits has severely impacted NGR, forcing the company to reduce investment and operate at a breakeven level. Management has expressed concerns that such a high tax could push players towards the black market, questioning the long-term viability of the regulated market under these conditions. The company will need to carefully assess its strategy in Colombia if this tax regime persists.

In Spain, the reintroduction of welcome bonuses has intensified competition, leading to higher customer acquisition costs and a more challenging promotional landscape. While Codere Online has adapted its strategies and maintains "very attractive" unit economics, this environment demands constant optimization and could pressure margins. The potential for future legislative changes to reinstitute marketing restrictions, while offering a potential upside, also introduces regulatory uncertainty.

Conclusion

Codere Online is demonstrating a compelling transformation, moving decisively towards sustained profitability and disciplined growth. The core investment thesis hinges on its strong, localized market leadership in Mexico and Spain, where strategic investments continue to yield robust returns despite currency headwinds and competitive pressures. The company's ability to adapt its operational and marketing strategies, coupled with its focus on platform optimization and localized user experience, underpins its resilience.

With a clear outlook for increased EBITDA generation in the latter half of 2025, driven by optimized marketing spend and favorable market dynamics in Mexico, Codere Online is well-positioned to capitalize on major sporting events like the 2026 World Cup. While challenges in Colombia and the competitive Spanish landscape require ongoing vigilance, the company's prudent capital allocation, including its share buyback program, reflects a management team committed to both organic growth and shareholder value. Investors should view Codere Online as a compelling opportunity in the online gaming sector, poised for continued profitable expansion through strategic focus and operational excellence, even as it carefully considers future market entries and technological advancements.