Executive Summary / Key Takeaways

• Codere Online is demonstrating robust underlying growth, particularly in Mexico, driven by strong customer acquisition and retention, despite significant currency headwinds from the Mexican peso's devaluation.
• The company's strategic focus on core markets, Spain and Mexico, is yielding positive adjusted EBITDA, with management projecting continued profitability and higher EBITDA generation in the second half of 2025.
• Technological differentiation, including a proprietary platform and optimized mobile app strategy, is crucial for efficient customer acquisition and cross-promotion, enhancing player value and retention.
• Regulatory shifts, such as the reintroduction of welcome bonuses in Spain and a new VAT in Colombia, present challenges, but Codere Online is adapting its strategies to mitigate impacts and maintain market viability.
• With a disciplined capital allocation approach, the company is exploring inorganic growth opportunities and share buybacks, while prioritizing investments in markets with proven high ROI, such as Mexico in anticipation of the 2026 World Cup.

Setting the Scene: A Focused Play in the Dynamic iGaming Landscape

Codere Online Luxembourg, S.A. (NASDAQ:CDROW) operates at the intersection of online sports betting and casino gaming, primarily serving the vibrant markets of Spain and Latin America. The company's core strategy revolves around leveraging its established brand presence and operational expertise to capture market share in regulated environments. This approach is underpinned by a commitment to technological differentiation and disciplined capital allocation, aiming to balance aggressive growth with sustainable profitability.

The online gaming industry is characterized by rapid technological evolution, intense competition, and evolving regulatory frameworks. In this dynamic environment, Codere Online has strategically positioned itself by focusing on markets where it can build a strong, localized presence, often benefiting from omnichannel synergies with its retail parent. This foundational strategy has been shaped by a history of calculated market entries and adaptations to regulatory shifts, setting the stage for its current trajectory.

Strategic Evolution and Technological Edge

Codere Online's journey reflects a deliberate strategic evolution, with early investments in Mexico around 2021-2022 proving instrumental in building brand recognition and market share. This foresight has allowed the company to establish a significant foothold before the market became even more competitive. The company's product mix has also evolved, with the casino segment steadily increasing its contribution to Net Gaming Revenue (NGR), stabilizing at approximately 60-61% by the second quarter of 2025. This shift highlights a successful adaptation to player preferences and a diversified revenue stream.

A critical component of Codere Online's competitive moat lies in its proprietary mobile technology and continuous optimization of its user acquisition (UA) strategy. The company's mobile application and website are designed for seamless sports betting and casino experiences, offering localized content and payment solutions crucial for Latin American markets. This technological foundation enables efficient user interfaces, which are vital for performance within regulatory constraints and for differentiating from competitors. For instance, the company actively tests various acquisition channels, such as mobile apps, to optimize cost per acquisition (CPA) and player lifetime value (LTV). While some experiments, like a three-month mobile app test in Mexico, initially yielded high traffic with lower LTV, the company's ability to quickly analyze and optimize these channels demonstrates agile operational execution.

The "so what" for investors is clear: Codere Online's technological capabilities and data-driven UA strategy directly contribute to its competitive advantage. By efficiently acquiring and retaining customers, and effectively cross-promoting its casino and sports betting offerings, the company enhances its financial performance through improved margins and sustained revenue growth. This strategic investment in technology and operational refinement allows Codere Online to compete effectively against larger, more diversified global players by maximizing returns in its focused markets.

Competitive Landscape and Market Positioning

Codere Online operates within a highly competitive global online gaming market, facing off against industry giants like Flutter Entertainment (PDYPY), Entain (GMVHF), DraftKings (DKNG), and Kindred Group (KNDGF). These competitors, with their vast scale and diversified portfolios, present a formidable challenge. However, Codere Online carves out its niche through a focused regional strategy and deep local expertise, particularly in Latin America.

In Mexico, Codere Online enjoys a relatively lesser competitive intensity compared to Spain, though this is expected to increase leading up to the 2026 World Cup. The company's early and sustained investment in Mexico has provided a significant advantage, as new entrants now face substantially higher media prices and greater investment requirements to build brand presence. Codere Online's local presence and omnichannel opportunities, leveraging its retail parent's leadership, further strengthen its position. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, the company's strong performance in Mexico suggests effective market penetration.

Spain, on the other hand, presents a "hard competitive landscape" following the reintroduction of welcome bonuses in April 2024. This regulatory shift has intensified competition, with rivals offering generous incentives to attract players. Codere Online has adapted by becoming more selective in its promotional activity and focusing on acquiring higher-quality customers, improving both player value and retention. The unit economics in Spain, while impacted by the increased competition, are still considered "very attractive," underscoring the market's underlying strength for the company.

Compared to global players like Flutter and Entain, Codere Online's offerings are more regionally focused, potentially allowing for greater agility and responsiveness to local market dynamics. While larger competitors may possess superior technological ecosystems and R&D budgets, Codere Online's regulatory licenses and localized content in markets like Mexico and Colombia provide a distinct advantage in market access and tailored user experiences. This allows Codere Online to maintain a strong competitive footing in its core operational geographies, even if it lags in global scale and overall innovation speed.

Financial Performance and Operational Momentum

Codere Online has demonstrated a compelling financial inflection point, achieving positive adjusted EBITDA in each quarter of 2024, culminating in a full-year adjusted EBITDA of €6.4 million. This momentum continued into 2025, with Q1 2025 adjusted EBITDA reaching €1.8 million and Q2 2025 adjusted EBITDA at €2.3 million. This consistent profitability underscores the effectiveness of its strategic investments and cost containment efforts.

Net Gaming Revenue (NGR) trends highlight the company's underlying growth, despite significant currency headwinds. In Q2 2025, NGR was €55 million, roughly flat year-over-year. However, in constant currency terms, NGR would have been nearly €61 million, a 12% increase. This disparity is largely due to the substantial devaluation of the Mexican peso, which negatively impacted Q2 2025 NGR by €5.7 million, the highest impact since June 2024. Mexico's NGR grew 3% to €29 million in Q2 2025, but on a constant currency basis, it would have surged by 23%, demonstrating robust organic expansion. The market saw a 36% increase in average monthly active customers to 85,000 in Q2 2025, albeit with lower player values but also lower upfront acquisition costs.

Spain's NGR remained flat at €22 million in Q2 2025, reflecting a more competitive environment. However, a slight increase in spend per active customer partially offset a 3% decline in active customers, as the company prioritized higher-value players. The casino segment's contribution to total NGR stabilized at 61% in Q2 2025, reflecting a successful long-term trend of increasing focus on this segment. First-time depositors (FTDs) across the business grew 7% year-over-year to 78,000 in Q2 2025, with an average CPA of €218, largely consistent with the prior 12-month period.

Liquidity remains strong, with €45 million in total cash and approximately €41 million available as of June 30, 2025.

The company generated over €5 million in total cash flow in the first half of 2025, even after a €2.1 million negative FX impact. A net working capital position of negative €24 million (11% of LTM NGR) is considered normalized, reflecting restrictive trade terms with suppliers. This solid cash position provides flexibility for continued investment and potential capital allocation initiatives.

Outlook and Strategic Initiatives

Codere Online reiterates its 2025 guidance, projecting 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 after strong 2024 growth, accounts for anticipated headwinds, including the weaker Mexican peso in the first half of 2025 and the competitive promotional environment in Spain.

Management anticipates a stronger second half of 2025, with marketing spend expected to be lower than in the first half, translating into higher EBITDA generation. This positive outlook is driven by continued strong returns from Mexico's existing and new players, coupled with a better-than-expected evolution of the Mexican peso towards year-end. The company is strategically preparing for the 2026 World Cup, which Mexico will co-host, by building scale in the market through sustained marketing investment.

In terms of capital allocation, Codere Online is exploring opportunities for inorganic growth or expansion into new Latin American markets, while maintaining a disciplined approach. The company has a "material amount" of Net Operating Losses (NOLs) from past investments in Mexico and Spain, which could be valuable in the context of future transactions. A one-year share buyback plan for up to $5 million, approved by shareholders in March 2025, further signals management's confidence in the company's valuation and cash flow generation. As of mid-August 2025, approximately 106,000 shares had been repurchased for about €700,000.

Risks and Challenges

Despite the positive momentum, Codere Online faces several pertinent risks. The significant devaluation of the Mexican peso remains a primary concern, directly impacting reported NGR. While the company benefits from a natural hedge due to its peso-denominated cost structure, sustained currency weakness could still pressure profitability.

Regulatory changes pose another substantial challenge. The introduction of a value-added tax (VAT) on player deposits in Colombia has severely impacted the business, leading to a 40% lower NGR than expected and forcing the company to reduce operations to a breakeven point. Management views this "huge, huge, huge tax" as potentially driving players to the black market and is evaluating the long-term viability of operating under such conditions. In Spain, while the company has adapted to the reintroduction of welcome bonuses, the competitive landscape remains intense, requiring continuous optimization of promotional strategies.

Finally, the recent transition of Oscar Iglesias, the Chief Financial Officer, to a Board role, effective by December 31, 2025, introduces a period of leadership change. While stated as voluntary and not due to disagreements, an orderly transition to a successor will be crucial for maintaining operational stability and investor confidence.

Conclusion

Codere Online stands at a pivotal juncture, demonstrating impressive underlying growth in its core markets, particularly Mexico, despite significant external pressures. The company's disciplined strategic focus, underpinned by effective technological deployment and a robust customer acquisition strategy, has successfully translated into consistent positive adjusted EBITDA. Mexico's strong performance, fueled by ongoing investment and the anticipation of the 2026 World Cup, forms the bedrock of the investment thesis, promising continued expansion.

While currency headwinds and evolving regulatory environments in Spain and Colombia present challenges, Codere Online's proactive adaptation and commitment to cost containment highlight its operational resilience. The company's solid liquidity and strategic consideration of capital allocation, including share buybacks and potential inorganic growth, underscore a confident outlook. For discerning investors, Codere Online represents a compelling opportunity to participate in the growth of the Latin American iGaming market, driven by a clear strategy, operational excellence, and a commitment to long-term value creation.