The best online gambling bets

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Companies involved in online gaming have taken the traditional gaming world by storm over the past year. Entertainment Caesars, MGM Resorts, Wynn Resorts and others with decades of operating history have been abandoned in favor of relatively new entrants who have yet to become household names.

DraftKings, Rush Street Interactive, Golden Nugget online gameand even Penn National have been the hottest online gambling stocks and now have valuations that rival some of their peers on the Las Vegas Strip. So should you bet on one of the newcomers or an established name in gambling? Let’s take a look at the industry today.

Image source: Getty Images.

Where is the gaming world today

To frame the comparison of online gaming companies, it is important to look at where the major players are today. You can see below that DraftKings is by far the largest online gaming company by revenue and valuation at Friday morning prices, but Rush Street Interactive and Golden Nugget Online Gaming are growing fast.

Company Market capitalization Turnover (TTM) Income advice Q4 2020 growth rate
DraftKings (DKNG -8.36% ) $25.2 billion $614.5 million $900 million to $1 billion 146%
Rush Street Interactive (ROI -4.35% ) $3.3 billion $278.5 million $420-460 million 260%
Golden Nugget online game (GNOG -8.84% ) $1.3 billion $91.1 million $130-145 million 48%
Penn National (PENN -3.44% ) $16.5 billion $3.58 billion N / A (32.5%)
MGM Resorts (MGM -1.91% ) $20.6 billion $5.12 billion N / A (60%)

Data source: Company filings and Google Finance. TTM = last 12 months.

The chart shows how crazy valuations have gone in the online gambling sector. DraftKings in particular is trading at more than 25 times the 2021 forecast, and the company is far from profitable. Rush Street Interactive is trading for 12 times last year’s sales, and Golden Nugget is trading for 14 times.

Penn National has been another hot online gambling stock after partnering with Barstool Sports last year. But it’s only just started rolling out its online gaming strategy, so it’s hard to judge the company today.

What you will notice is that there is no shortage of competitors in the market and no one is actually making a profit from online gambling. So what should investors be looking for?

Market dominance will be key

Like most tech stocks, scale will be everything for online gaming, so taking market share early will be key. Creating games and getting approved by regulators requires upfront fixed costs, but the variable costs will be extremely low because online gaming is simply a cloud technology platform.

Where we might see the most leverage is in sales and marketing spend. Right now, DraftKings and MGM Resorts appear to be building partnership networks with major sports leagues and high-profile partners that aim to stifle competition. To keep pace, smaller online gambling sites will need to offer more user incentives, better odds, differentiated games or other innovations that can appeal to consumers.

Other online gambling actions

The major betting sites are not the only ones involved in online gambling. Gan Ltd. is a solution provider for most major online gaming sites. The company has created a suite of products including customer account management, regulatory reporting, payment services, identity verification and proprietary games. The company’s revenue was just $35.2 million in 2020, but management expects revenue of $100-105 million in 2021 through partnerships with Wynn Resorts, Churchill FallsPenn National and many others are starting to step in. It’s a company that can ride the wave of growth in online gambling without risking a single operator winning in the long run.

Fubo TV is another company looking to leverage its sports audience into a sports betting business. The company announces that it will launch a bookmaker this year and this could generate additional revenue. But it’s still unclear exactly what role FuboTV will play in this increasingly competitive market.

There are many other stocks traded in the United States or abroad that could also play an important role in online gambling. The group of stars, Flutter Entertainment, hear, 888 Assets, Genius Sports and many more play a role in online gambling around the world. But here, I’ve focused on major US-traded stocks that I believe have the potential to grow.

Where to place your bets today

Since scale is important in online gambling and companies aren’t making money yet, there are two stocks that stand out as winners for me in this space: MGM Resorts and Gan Ltd.

MGM Resorts is one of the market leaders in every state it is licensed in, and it is growing as fast as any online gambling operator. And it has partnerships with the NBA, MLB, NHL, MLS, Nascar, PGA Tour, Wild Buffalo Wings, Topgolf, and more. It floods the market and has the capital to capture a large share of it.

The other stock I like is Gan. The company has the advantage of being able to grow with smaller operators like Penn National, Wynn, Churchill Down and others, so it’s a bet on the overall growth of the industry. And it offers the underlying technology and services that all betting companies will need without taking the risk of taking bets themselves.

Online gambling is a hot business today, but sometimes the best performing stocks won’t be the winners in the long run. I think MGM Resorts and Gan offer the best balance of low risk and high reward as the industry grows.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.


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