What: Leading sports analytics company Catapult Group International Ltd (ASX: CAT) has seen its share price sink around 13% today after the announcement of a disappointing decision by the AFL for the company.
Here's what investors were told: "The AFL has entered into preferred partner negotiation with Champion Data regarding athlete tracking services for the AFL from season 2017. Champion Data is a current provider of sports statistics to the AFL and 49% owned by the AFL."
There are a couple of takeaways here for investors: Firstly, it's important to remember that (in general) just because a company has a large market opportunity it doesn't mean the company will successfully commercialise its specific product. For this reason investors need to be careful about extrapolating a large market opportunity into a large market valuation.
Secondly, in a capitalist system, a large opportunity is bound to draw large levels of competition within a very short space of time. This is another factor which needs careful consideration when attempting to value a future market share.
Now What: Importantly for shareholders, Catapult has been busily diversifying its revenue streams and in 2015 around 85% of its revenues came from overseas markets – overseas customers include the NFL, the NBA and 30 English soccer teams. This diversity offers a large degree of protection for the group from this specific decision of the AFL.
High growth companies are bound to suffer setbacks along the way; other growth companies such as ResMed Inc. (CHESS) (ASX: RMD) and Sirtex Medical Limited (ASX: SRX) are prime examples. For investors who are positive on the long-term fundamental outlook for Catapult, this short-term issue could present them with an appealing buying opportunity.
