Subject: Re: Evolution AB - an update
To address your point crudely but accurately: Earnings aren’t rising because Evolution is currently paying the "bill" for its own long-term survival.The company is undergoing a forced structural migration.

In 2025/2026, Evolution isn't just growing; it's rebuilding its foundation to satisfy regulators while fighting off the most aggressive external attacks in its history.

While revenue was essentially flat in 2025 (+0.2%), Net Income even fell. This "bottom-line bleed" is driven by three specific factors:

- The "Ring-Fencing" Cost: Evolution proactively cut off "gray market" access in Europe to protect its core licenses (specifically under UK and German pressure). CEO Martin Carlesund noted that this dropped "channelization" to 50% in some markets—meaning they effectively turned off half their potential revenue in those areas overnight to stay "clean" for U.S. regulators.

- Operating Expense Creep (+8.3%): To build the "local studios" in Brazil and the U.S., Evolution had to hire thousands of people before those studios were fully revenue-generating. In 2025, they increased their table count to 2,000 (up from 1,700), but the revenue from those new tables hasn't scaled yet.

- The Cybersecurity "Arms Race": In Asia (historically 40% of revenue), competitors and "criminal elements" have been high-jacking Evolution’s streams. Evolution’s counter-measures in 2025 were actually too effective—they accidentally blocked legitimate players, causing a significant revenue dip that they are only now beginning to recover.

Is it transient or structural?

I believe transient. Once the Brazil and New Jersey "mega-studios" are at capacity, the hiring spree slows and margins normalize. The Asia-Cyber attacks have decreased. Revenue in Asia returned to growth in Q4 2025/Q1 2026 after security patches were refined. Quote from CEO's comment for Q4: "Zooming in on the fourth quarter, Asia has turned back to growth compared to the third quarter, signaling some progress in our hard work to combat cyber criminality. The progress is slow, methodical, and very important. Our studio in the Philippines is also continuing to develop nicely." Not enthusiastic, but going in the right direction, in my mind. And finally Europe "ring-fencing": This is a "one-off" purge. Once the unregulated revenue is gone, the remaining revenue is higher quality and legal. Regulation is a double-edged sword: while it is an immense operational burden for Evolution, it also creates a formidable barrier to entry for competitors.

But again: Risks remain, and all this probably does not qualify as "evidence" that this is transient - it is just my best guess (and remember: the management's best guess, the 400+ key contributors who have bought the warrants).

Uncertainty remains: Some days ago I have read an article that Treasury Secretary Scott Bessent and Fed Chair Jerome Powell convened Wall Street leaders in an emergency meeting addressing Anthropic’s latest model release. Could Anthropic become a threat to Evolution's business model? Yes, I guess.