For the golfers reading this, you’d be familiar with the Callaway brand. Last year, the golfing equipment giant finalised their acquisition of TopGolf. For those unfamiliar, this report describes TopGolf as, “a tech-enabled golf entertainment business that generates the vast majority of its revenues from large venues that are akin to a mix between a bowling alley, a nightclub, and a driving range.” That basically sums it up. This analyst report takes a look at the newly combined company – renamed from Callaway to TopGolf Callaway Brands – and considers it as a potential investment.
Boyer Research, the authors of this analyst report, believe that there is material upside from the current share price. Today, the company’s share price is ~$19 and Boyer believe that it is worth more than $40.
Reading over this report, there is a big red flag for us. Investors need to watch out for companies that are on an acquisition spree. Often, acquiring companies can make metrics look great – revenue will be growing and the per share metrics will be as well (as long as the acquisitions were made with cash and debt rather than by issuing new shares). But inorganic growth can only take you so far. Reading this report, Callaway has had some success (TravisMathew acquired in 2017) and some struggles (Jack Wolfskin acquired in 2019). But for us it is the frequency of the acquisitions that is the watch out. In this article, Boyar share some thoughts on Callaway’s acquisition strategy and where their biggest acquisition to date – TopGolf – may fall in time.
They say invest in what you know, and after visiting a few TopGolfs on our recent trip to the United States, we can certainly vouch that it’s a lot of fun. Whether or not it’ll be a good investment remains to be seen. But golf is changing and embracing the idea that sport is an entertainment product (see: the new Indoor Golf League by Tiger Woods and Rory McIlroy or Tiger’s new golf-entertainment business PopStroke). TopGolf is right in the middle of this shift, and now one of the world’s biggest golf brands, Callaway, has decided it wants to ride this wave as well.
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