How small-cap TruGolf is trying to profit from making golf more accessible

The game of golf is growing at an impressive pace in the U.S.. In 2023, more than a third of Americans over the age of five either played golf, followed the game, or listened to a golf-related podcast — a 30% increase versus 2016, according to the National Golf Foundation (NGF). The small company TruGolf aims to capitalize on this growing enthusiasm, producing golf simulators and rolling out a franchise network. What should potential investors know about it?

Americans and golf

According to the pollster Gallup, golf is one of the top 10 most popular sports to watch in the U.S. Forbes, citing the American Golf Industry Coalition and the NGF, has reported that the impact of golf on the U.S. economy — both direct and indirect (i.e., not only revenues generated by tournaments but also charitable giving and jobs tied to the sport, for example) — exceeded $226 billion in 2022.

As of 2023, 45 million Americans aged six and older play golf, either on- or off-course, or both. More than 40% do so at places like driving ranges, indoor golf simulators, and golf entertainment venues like Topgolf. The NGF estimates that there are nearly 16,000 golf courses at 14,000 golf facilities, meaning there are more golf courses nationwide than Starbucks or McDonald’s stores.

Last year, a record 3.4 million Americans played golf on a course for the first time — surpassing the peak during the career of the golf superstar Tiger Woods.

Meanwhile, according to the NGF, 6.2 million people used golf simulators in 2023, a 73% jump compared to pre-pandemic levels, while that figure does not account for home simulators. Econ Market Research expects the golf simulator market to grow from $1.80 billion in 2023 to $4.31 billion by 2032.

TruGolf has built its business around this growing interest in golf. In particular, it makes indoor golf simulators and software for them, betting on a decline in the popularity of outdoor rounds and a simultaneous increase in indoor play.

Due to high maintenance costs, over a hundred golf courses close each year, meaning more demand for spots at the remaining courses and higher prices for golfers, TruGolf claims.

Teeing off without Microsoft

TruGolf started in 1983 as a subsidiary of Access Software, a Salt Lake City-based video game developer whose titles included Tex Murphy, Beachhead, and Links. In the early 1990s, TruGolf partnered with Microsoft to create Microsoft Golf, a spin-off of Links.

In 1999, Microsoft acquired Access Software, but TruGolf was not part of the deal. After several years and a series of transactions, Access was closed down. The TruGolf team shifted to making golf simulators, focusing initially on establishing residential and commercial golf simulation as “a viable industry” and then on luxury clients.

The company also sold its software to manufacturers of golf equipment before starting to make its own. For instance, the company now sells launch monitors, which measure the impact of the golf club on the ball and its flight trajectory, displaying the results immediately. Some monitors are designed for indoor use, while others can be used outdoors as well.

Today, TruGolf describes itself as one of the leading manufacturers of golf simulators and distributors of equipment for them. Its mission is to make golf — a sport still seen by many as elitist — “more available, approachable, and affordable through technology.” 

The company’s business has two main components: selling equipment and software for golf simulators under its own brand and providing software to other companies. For example, TruGolf offers a launch monitor for $3,500 and a portable golf simulator priced at $12,750. For context, golfers spend an average of $2,000-$2,500 annually to play on traditional courses.

This summer, TruGolf announced the launch of a national franchising initiative as part of an “aggressive growth strategy.” It allows investors to “own” a region with a population of a million people or more, open and operate a flagship location, and act as the company’s agent to sell and support independent franchisees in the region. TruGolf is to provide franchisees with simulator equipment, software, and a range of games. It will get a share of revenue, and will compensate regional developers for attracting new franchisees. Franchise locations will be managed independently.

TruGolf also plans to launch a Virtual Golf Association for online players, a kind of global league that “will enable people around the world to play golf with each other, against each other, and even against real pros’ historical scoring data,” TruGolf notes.

What investors should know

TruGolf went public in early 2024 through a merger with a SPAC, Deep Medicine Acquisition Corp, in a deal that valued the company at $125 million. Since February 1, its shares have been trading on the Nasdaq. They are down around 32% deal-to-date, closing at $0.91 per share on Thursday, October 10.

TruGolf operates in a highly competitive industry, a fact the company acknowledges. Econ Market Research identifies its competitors as South Korea’s GolfZon and Garmin. The latter, for example, makes smartwatches, range finders, and swing simulators for golfers.

Despite the market’s growth, TruGolf has yet to achieve profitability. In 2023, its top line came in at $20.6 million (about flat year over year), while the bottom line was negative $10.3 million, versus a loss of $957,000 in 2022. The company posted a $2.9 million loss for the first half of 2024, a nearly 50% improvement from the previous-year period.

In August, TruGolf received a letter from Nasdaq indicating that the company was not in compliance with the minimum stockholders’ equity requirement: Its stockholders’ equity was negative $10.5 million, while Nasdaq requires a minimum of (positive) $10.0 million. TruGolf intends to submit a rectification plan to Nasdaq before the November 18 deadline, and if it is approved, the company will have 180 days to regain compliance.

In early October, TruGolf announced an offer for additional shares, convertible bonds, and warrants. This raise would increase its authorized capital by almost 650%, diluting shareholders. Investors should also note that TruGolf is unlikely to be included in the Russell 2000 or S&P SmallCap 600 indexes, as it has Class B shares with 25 votes per share and Class A shares with one vote each. Since 2017, FTSE Russell and S&P Dow Jones have excluded most companies with multi-class share structures from their indexes. Note that inclusion in an index almost always attracts new long-term investors and leads to increased liquidity and trading, according to Nasdaq research. TruGolf has three main shareholders: CEO Christopher Jones, a cofounder of Access; Steven Johnson; and David Ashby. Together, they control over 75% of total voting power.