Analyst bullish on online gaming sector
“This is the business we’ve chosen” seemed to strike a note of resignation at the start of a recent report from Jefferies Equity Research analyst David Katz. However, the author went on to say that 2025-6 would be “really big” for digital gambling.
“Unprecedented near-term operator earnings volatility does not alter the long-term opportunity,” wrote Katz, noting online companies’ progression into profitability and positive cash flow. He placed “buy” ratings on four online gambling concerns, raising the price targets of all but one.
The fortunate four were DraftKings, Rush Street Interactive (parent of BetRivers), Gambling.com and Sportradar. Only DraftKings received a price bump.
Rush Street and Gambling.com were each boosted a dollar, to US$17 and US$21 per share, respectively. Sportradar was hiked from US$17 a share to US$23 apiece.
DraftKings’ “relatively flat” performance and recent earnings cuts worked against it. By contrast, Rush Street was hailed for its non-U.S. efforts and “highly selective” targeting of the U.S.
Katz called the digital sphere’s total addressable market a “powerful positive,” offset by a business that is exceptionally volatile on a week-to-week basis. Still, he felt that despite the strongest hold volatility in 20 years, the hyperactive nature of the digital market was a likely plus in the years ahead.
The analyst then identified five catalysts for the digital sphere going forward. First was the launch of sports betting in Missouri, targeted for late May or sometime in June. Second was possible legalization of sports betting in Minnesota, Texas, Georgia, South Carolina and Oklahoma during upcoming legislatures.
Ten percent-plus digital growth in the first-moving states was another catalyst, as was the popularity of proposition bets, redounding particularly to the favor of Sportradar. Finally, igaming’s margins were considerably greater than those of sports wagering.
Katz saw a US$37.5 billion total addressable market in the U.S. growing to US$50 billion by 2030. Of that, US$33.2 billion alone comes from online sports betting. Handle per capita has grown over the past three years from 35% in 2022 to 15% last year, slowing to 12% looking ahead.
As for igaming, Katz perceived an eventual US$16.4 billion market, growing at 55% three years ago and 25% last year. He expected long-term growth in the neighborhood of 15%.
The Jefferies analyst observed that digital gambling “remains the one area of our coverage which is not subject to economic cycles or interest rates … given its nascent state and lack of meaningful leverage across the group.”
Katz forecast burgeoning revenues ahead for DraftKings, Rush Street and SportRadar. Gambling.com’s acquisition of OddsJam prompted his elevated estimate of that firm.
The analyst also predicted a pileup of revenue that would prompt stock repurchases, further boosting share prices. He estimated that Sportradar and Rush Street would have 60% more cash on hand by the end of 2026 than now, and that DraftKings would have 140% more.
Despite Katz’s unchanged price target on DraftKings, he said he was keeping it “as our franchise pick given our conviction on its long-term revenue and earnings power.”
Katz prognosticated 34% revenue growth this fiscal year, with 21% more in fiscal 2026, as players spent more per person. He also predicted DraftKings would improve its margins as it begins “realizing efficiencies of scale on things like customer acquisition spend.”
David McKee is an award-winning journalist who has three decades of experience covering the gaming industry.
