Codere Online Luxembourg, S.A. (CDRO)

Executive Summary / Key Takeaways

• Codere Online achieved a critical operational inflection in 2024, delivering positive adjusted EBITDA in every quarter totaling €6.4 million, proving its disciplined focus on Spain and Mexico can generate profits despite significant external headwinds.
• Mexico's underlying business is growing at an impressive 34% constant currency rate, but the Mexican peso's 19% devaluation in Q2 2025 created a €5.7 million revenue headwind that masks the true operational strength and represents the single largest risk to the investment thesis.
• Spain has successfully adapted to the reintroduction of welcome bonuses in April 2024, maintaining stable EBITDA contributions around €5.5-6.3 million per quarter by improving customer quality, though revenue growth has stalled as the market became more competitive.
• The company's capital allocation demonstrates management confidence: a $5 million share buyback program approved in March 2025 was later increased to $7.5 million, signaling belief that operational cash generation can support both growth investment and shareholder returns.
• Two variables will determine whether this margin inflection is sustainable: the trajectory of the Mexican peso and the company's ability to maintain customer acquisition efficiency in Spain's increasingly promotional environment, while its scale disadvantage versus global operators like Flutter Entertainment and Entain remains a persistent structural challenge.

Setting the Scene: A Regional Specialist in a Global Game

Codere Online Luxembourg, S.A. emerged from its 2021 de-SPAC event as a pure-play online gaming operator laser-focused on Spain and Latin America, a strategic choice born from painful lessons in Italy where the company learned that entering markets without established brands, proprietary technology, or local licenses leads to unsustainable losses. Founded in 2021 and headquartered in Luxembourg, the company operates in a highly regulated, capital-intensive industry where customer acquisition costs routinely exceed €200 per first-time depositor and regulatory frameworks can shift overnight, creating both opportunities and existential threats. Unlike global giants Flutter Entertainment and Entain that leverage scale across dozens of markets, Codere Online has deliberately chosen depth over breadth, building what management describes as "omnichannel" advantages by leveraging its retail parent's decades-long presence in markets like Mexico where local relationships and brand recognition function as a moat against better-capitalized foreign competitors.

The online gambling industry is undergoing structural shifts that define Codere Online's strategic context. European markets like Spain are maturing, with regulatory tightening followed by selective loosening creating periodic competitive dislocations. Latin America represents the industry's primary growth engine, with 15%+ annual expansion projected through 2030, but this growth comes with currency volatility and regulatory fragmentation that punishes operators without local expertise. The company's position in this value chain is straightforward: it acquires customers through digital marketing and sports partnerships, converts them into active players on third-party gaming platforms, and earns revenue from their betting activity. The key differentiator is not technology—Codere Online uses licensed platforms rather than proprietary software—but rather market access, regulatory compliance, and brand affinity in its chosen geographies.

History with a Purpose: How Failure Forged Discipline

Codere Online's Italian experiment, which management characterizes as an "experiment" that proved too difficult to penetrate, fundamentally shaped its current capital allocation discipline. The company withdrew from Italy after recognizing that competing as a non-brand without owned technology or licenses against entrenched local operators was a recipe for burning cash with no path to returns. This failure taught management to evaluate markets through a ruthless ROI lens, a lesson that now manifests in its approach to Colombia, where a 50% effective tax rate from a new value-added tax on deposits has prompted the company to reduce operations "to the minimum" to maintain breakeven. The historical pattern is clear: Codere Online will exit or minimize exposure to markets where unit economics deteriorate, protecting capital for its core territories.

The January 2023 tax reorganization, which migrated the business from Malta to Spain and shuttered Malta operations, further simplified the corporate structure and likely reduced compliance costs and regulatory complexity. This move, while operationally disruptive at the time, created a more transparent and sustainable cost base that contributed to the 2024 EBITDA inflection. The company's evolution from a de-SPAC with uncertain prospects to a consistently profitable operator reflects a strategic maturation process where every market entry decision is now weighed against proven success in Spain and Mexico.

Financial Performance: Profits Emerging Through Headwinds

The 2024 financial results represent the clearest validation of Codere Online's strategy, with positive adjusted EBITDA in every quarter culminating in €6.4 million for the full year. This performance is particularly impressive given the simultaneous headwinds: the Mexican peso devalued by 14-19% across quarters, Spain's competitive landscape intensified with welcome bonus reintroduction, and Colombia's VAT regime made that market nearly unprofitable. The fact that EBITDA turned positive despite these pressures demonstrates that the company's operational leverage is real and that management's focus on customer quality over quantity is bearing fruit.

Mexico's performance illustrates both the opportunity and the risk. In Q2 2025, reported net gaming revenue grew just 3% to €29 million, but constant currency growth was a robust 23%. The €5.7 million FX impact in Q2 alone represents nearly 20% of Mexico's quarterly revenue, a headwind magnitude that would cripple many operators. Yet underlying metrics remain strong: average monthly active customers surged 36% to 85,000, and first-time depositors grew 7% to 78,000. Management's commentary reveals the strategic nuance: "the unit economics, notwithstanding the comments that Aviv just made, the portfolio and the existing customer base is performing well." This signals that while currency masks growth, the customer acquisition engine is functioning efficiently with CPAs around €218 and improving LTV trends.

Spain's adaptation to the new competitive reality shows operational resilience. After welcome bonuses returned in April 2024, revenue growth stalled, with Q1 and Q2 2025 showing flat €22 million quarters. However, EBITDA contributions remained solid at €5.5-6.3 million, and active customers stabilized at 52,000 in Q1 after declining 3% in Q2 due to more selective promotional activity. Management's assessment that "the unit economics in Spain still are very, very good" and that the market transitioned from "great" to "very good" indicates they accept slightly lower returns in exchange for maintaining market presence and customer quality. This discipline—refusing to match competitors' promotional spending blindly—preserves long-term margin potential even at the cost of near-term growth.

The consolidated cash position of €45 million as of June 2025, with approximately €41 million available, provides a modest but sufficient buffer for a company of this scale. Net working capital of negative €24 million (11% of LTM revenue) reflects the working capital dynamics of the business and is described by management as normalized. The company generated €7.5 million in available cash in the first half of 2025, though FX impacts reduced ending balances by €2.1 million. This cash generation, modest as it is, enabled the board to approve and subsequently increase a share buyback program, a significant signal for a company that was burning cash just two years prior.

Outlook and Execution: Betting on World Cup and Currency Stability

Management's 2025 guidance calls for net gaming revenue of €220-230 million and adjusted EBITDA of €10-15 million, implying EBITDA margins of 4.5-6.5% at the midpoint. This represents meaningful progress from 2024's €6.4 million EBITDA but remains modest in absolute terms. The guidance embeds several critical assumptions: marketing spend in the second half will be lower than the first half, the Mexican peso will stabilize (or at least the headwind will lessen as the company laps the post-election devaluation), and Spain will return to revenue growth.

The Mexican peso assumption is the most fragile component of the outlook. In Q2 2025, management noted the 19% devaluation created the "highest impact in any quarter since the federal elections in June 2024." While they expect the headwind to continue into Q3 but "to a much lesser extent," this remains a macro variable entirely outside the company's control. If the peso weakens further or remains volatile, the €10-15 million EBITDA target becomes questionable regardless of operational execution. Conversely, if the currency stabilizes or strengthens, the underlying 23-34% constant currency growth could translate into significant operational leverage and potential EBITDA upside.

The Spain growth assumption rests on management's belief that they have "found the formula" to compete in the post-welcome-bonus environment. With active customers returning to pre-bonus levels and spend per active stabilizing, the company expects to "resume year-on-year revenue growth for the rest of 2025." However, this assumes competitors don't escalate promotional spending further and that the market doesn't fragment further. The risk is that larger players like Flutter Entertainment and Entain , with deeper pockets, could engage in prolonged promotional wars that pressure everyone's margins, forcing Codere Online to choose between market share and profitability.

The 2026 World Cup represents a clear catalyst for Mexico, with management explicitly stating that marketing investment "around the Club World Cup" and leading up to the World Cup will drive the business. This event-driven strategy is sensible but also creates a "feast or famine" dynamic—if the company over-invests in acquisition ahead of the World Cup and the tournament doesn't deliver the expected engagement boost, CAC could spike and LTV assumptions could prove optimistic. The Rayados de Monterrey sponsorship, which performed well during the Club World Cup, provides a template for how sports partnerships can drive engagement, but it also represents a significant marketing expense that must be justified by sustained customer retention.

Competitive Positioning: Local Depth vs. Global Breadth

Codere Online's competitive position is defined by a fundamental trade-off: deep local entrenchment in Mexico and Spain versus the scale and technology advantages of global operators. In Mexico, the company enjoys what it describes as "lesser competition" and a "local presence that also gives us a push." This translates to an estimated 20-30% market share in online betting, built on the retail parent's decades of brand building and the Rayados de Monterrey sponsorship. However, this moat is being tested by the entry of European competitors who, while currently "slowed down," are likely to re-engage ahead of the World Cup. Management acknowledges that "all the competitors will come back again and will try again to penetrate the market," suggesting the current competitive respite is temporary.

In Spain, Codere Online competes directly with Flutter's Betfair and Entain's Ladbrokes/Coral brands, which hold 20-30% and 15-25% market shares respectively. Codere Online's 5-10% share reflects its more limited scale but also its focused approach. The key differentiator is not product innovation—Flutter's platform offers "significantly faster in-play betting processing" and Entain provides a more integrated multi-product experience—but rather local brand loyalty and what management calls "omnichannel" opportunities. The ability to cross-promote between retail and online channels in markets where the parent company has physical presence creates a customer acquisition cost advantage that partially offsets the technology gap.

Rush Street Interactive presents a more direct comparison as a LatAm-focused peer. RSI's 19.7% revenue growth in Q3 2025 and 13% EBITDA margins demonstrate what a technology-led approach can achieve in these markets. RSI's "faster mobile processing and data analytics" creates a user experience advantage that could erode Codere Online's brand loyalty over time, particularly among younger, tech-savvy users. However, RSI's smaller scale and lack of retail partnerships mean it lacks Codere Online's local depth, creating a stalemate where each has distinct advantages.

The Colombian VAT crisis illustrates how regulatory moats can become traps. The 50% effective tax rate has made the market "very hard to operate" and management has reduced operations "to the minimum" to maintain breakeven. While this disciplined response protects cash, it also means surrendering market share to competitors willing to absorb losses or operate in the black market. The Panama growth (doubling revenue via product improvements) partially offsets Colombia's decline but highlights that Codere Online's smaller scale limits its ability to absorb regulatory shocks across multiple markets simultaneously.

Risks and Asymmetries: What Could Break the Thesis

The most material risk is a continued deterioration in the Mexican peso. With Mexico representing approximately 50% of revenue, a further 10-15% devaluation could wipe out the entire guided EBITDA range regardless of operational performance. Management's comment that "the ForEx is killing us" in Q4 2024, while candid, also reveals the limits of their hedging capabilities. Unlike larger competitors with natural hedges from global operations, Codere Online's concentrated LatAm exposure creates a leverage effect where currency moves directly hit both revenue and reported profitability. The asymmetry here is stark: peso stability or appreciation could unlock significant operational leverage, but further weakness could render the company unprofitable despite strong underlying growth.

The Colombia VAT regime represents a regulatory risk that could metastasize. Management's hope that "the regulator will realize it fast enough" acknowledges that the current 50% effective tax rate is unsustainable for regulated operators. If the tax remains, Codere Online's breakeven strategy becomes a slow exit, and the company's ability to participate in LatAm growth is permanently impaired. More concerning is the possibility that other LatAm markets could adopt similar tax structures, turning a single-market problem into a regional crisis. The mitigating factor is management's demonstrated willingness to exit unprofitable markets, as shown in Italy, but this also caps the company's long-term TAM.

Spain's competitive dynamics pose a margin erosion risk. The reintroduction of welcome bonuses has already "weakened directionally" unit economics, and if competitors escalate promotional spending further, Codere Online may face a choice between maintaining margins and losing market share. The company's selective promotional approach has preserved EBITDA, but active customer counts have fluctuated (down 3% in Q2 2025), suggesting competitors are gaining traction. The asymmetry is that if the market stabilizes and Codere Online's customer quality focus proves correct, margins could expand significantly. However, if promotional intensity continues, the Spain segment could follow Italy into a downward spiral of unprofitable growth.

Scale disadvantage remains a persistent structural vulnerability. Flutter Entertainment 's $47 billion enterprise value and 20-25% EBITDA margins give it firepower to outspend Codere Online on technology, marketing, and regulatory compliance. Entain 's £1 billion annual cash flow and Rush Street Interactive 's tech-led growth trajectory both highlight that Codere Online's local moats may be temporary. The company's modest €45 million cash position and 59x EV/EBITDA multiple (versus Flutter's 24x and Entain's 9.7x) reflect this vulnerability. The asymmetry is that if Codere Online can sustain profitability and grow cash generation, its valuation multiple could compress dramatically, creating upside. But if larger competitors decide to aggressively target Mexico ahead of the World Cup, Codere Online's limited resources could force a strategic retreat or sale.

Valuation Context: Pricing in Execution Perfection

Trading at $7.70 per share, Codere Online carries a market capitalization of $351 million and an enterprise value of approximately $310 million after accounting for net cash. The stock trades at 59x TTM EBITDA, a multiple that prices in flawless execution and significant growth acceleration. This compares to Flutter Entertainment 's 24x and Entain 's 9.7x, both of which reflect their larger scale, diversified geographic footprints, and superior cash generation. The premium multiple suggests the market is valuing Codere Online not on current earnings but on the potential for its Mexico operation to drive substantial operational leverage if currency headwinds abate.

The company's balance sheet provides some support for this valuation. With €45 million in total cash and no debt, the net cash position represents 13% of market cap, providing a cushion against operational volatility. The share buyback program, initially $5 million and later increased to $7.5 million, indicates management believes the stock is undervalued relative to intrinsic value, though the modest absolute size reflects capital allocation discipline. The company generated €7.5 million in available cash in the first half of 2025, implying an annual run-rate that could support both growth investment and modest returns to shareholders.

From a P/E perspective, the 85.6x multiple is elevated but reflects the early stage of profitability. The 17.2% return on equity and 3.7% return on assets demonstrate that while margins are thin, the company is generating acceptable returns on invested capital. The 90.6% gross margin highlights the inherent operating leverage in the business model—once customer acquisition costs are covered, incremental revenue flows through at high rates. The key question is whether the company can scale revenue sufficiently to cover its fixed costs and drive meaningful bottom-line growth.

Peer comparisons underscore the scale gap. Flutter Entertainment 's $16.7 billion revenue guidance and Rush Street Interactive (RSI)'s $277 million quarterly revenue both dwarf Codere Online's €55 million quarterly run-rate. However, Codere Online's 5-6% EBITDA margin is approaching Entain 's 7.9% operating margin, suggesting that operational efficiency is improving despite size disadvantages. The valuation multiple reflects a bet that Mexico's constant currency growth can translate into reported growth and margin expansion, but this requires currency stability and sustained customer acquisition efficiency.

Conclusion: A Local Moat Tested by Global Forces

Codere Online's investment thesis hinges on whether its local entrenchment in Mexico and Spain can generate sustainable profits large enough to justify its premium valuation and offset its scale disadvantage versus global operators. The 2024 EBITDA inflection proves that disciplined capital allocation and market focus can create value even in challenging environments. However, the company's performance remains hostage to external forces—the Mexican peso's trajectory, Colombia's tax policy, and Spain's competitive intensity—that management can influence but not control.

The two variables that will decide the thesis are execution velocity in Mexico and capital efficiency in Spain. If Mexico's underlying 23-34% constant currency growth can be sustained through the 2026 World Cup cycle and the peso stabilizes, operational leverage could drive EBITDA well above the €10-15 million guidance, compressing the 59x multiple and creating meaningful upside. Conversely, if currency headwinds intensify or Spain's promotional environment deteriorates further, the company's modest cash buffer and small scale could force a strategic retrenchment that caps long-term growth.

The share buyback program signals management confidence, but the modest absolute size reflects the reality that every euro of cash must be carefully allocated between growth investment and returns to shareholders. Unlike Flutter Entertainment (PDYPY)'s $2 billion annual cash flow or Entain (GMVHY)'s £1 billion, Codere Online's €7.5 million first-half cash generation leaves little room for error. For investors, the story is attractive if the margin inflection proves durable, but fragile if global competitors turn their attention to Mexico or if LatAm regulatory risks spread. The stock's valuation leaves no margin for safety, making it a bet on execution perfection in an imperfect environment.