Jefferies analyst reiterates confidence in Rush Street Interactive
Turning adversity into opportunity, Jefferies Equity Research analyst David Katz described recent weakness in Rush Street Interactive as a good chance to accumulate the stock. He reiterated a US$39 per share price target for RSI in 19 August investor note. The shares were trading at US$24.55 apiece at the time.
Katz contrasted “outsized growth” for RSI in Latin America and United States igaming with “flattish but profitable” US sports betting activity. “We see the accelerating margin of beat/raise quarters as compelling, with impacts from marketing spend and World Cup [comparisons] as less significant,” he wrote. RSI had beaten Wall Street expectations in 18 of the past 19 quarters.
Igaming was the increasing preference of RSI customers, Katz reported, with 70% globally and 80% in the US of the customer mix gravitating to icasino play. Katz said igaming was growing faster than online sports betting, especially in Peru and Mexico, two RSI markets.
The analyst added that “a meaningful percentage” of World Cup-derived gamblers were trying out igaming at RSI. Katz noted that it was too soon to judge how many of them would be retained over the long term.
While online sports betting was said to be profitable in all of RSI’s US jurisdictions, Katz remarked that the company was seeing the benefit in igaming of lower customer-acquisition costs and stronger returns, as well as more-rapid payback.
After second-quarter earnings were released, RSI shares plunged 30%. Katz attributed this in part to higher marketing costs. RSI management, he wrote, “expresses high conviction in near term returns and margin growth even with the launch of Alberta.”
Investors and RSI management also had differing views of the World Cup. The former felt, according to Katz, that significant soccer returns in 2026 would make earnings comparisons in 2027 considerably more difficult. RSI, however, saw it as a watershed customer-acquisition chance and one that could generate players for igaming as well.
RSI’s Delaware operations were coming off a flat May and June, caused by low table game hold, said Katz. However, July was reported to have seen a major resurgence, with revenues up as much as 45%.
“Finally, slower-than-expected US legalization should be noted, but the company continues to grow and expects to capture at least its share of US igaming industry growth given the large customer base it has acquired,” Katz related. “In total, the growth trajectory remains intact.”
But for growth, the biggest wellspring was reported to be Latin America and especially Colombia. With a value-added tax suspended by the courts, RSI revenues in the latter country catapulted 185% during the second quarter. “The expectation is that the new president Colombia should maintain a business-friendly policy environment,” Katz added, describing Colombian revenue as growing notably faster than that of the US.
Katz concluded by reaffirming RSI’s projections for 2027 revenue growth of 17% and cash-flow increases of 31%. He cited enormous growth in Latin America, steady accumulation in the US, plus the pickup of Alberta as tailwinds to the company.
The Jefferies analyst summarized that “capital allocation remains disciplined, with investment in organic growth the first focus, while M&A interest appears focused on Canada, Latin America, and igaming technology tuck-ins rather than large US transactions.” He added that US$100 million in stock repurchases were also oncoming.
David McKee is an award-winning journalist who has three decades of experience covering the gaming industry.
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The Backstory
RSI’s sell-off met a longer bullish case
Rush Street Interactive’s latest share weakness landed against a backdrop of unusually steady analyst support for a company that has increasingly separated itself from the broader online sports betting trade. The immediate issue was investor concern over higher marketing costs and the durability of World Cup-related revenue, but the larger story has been building for several quarters: RSI has leaned harder into igaming, expanded in Latin America and used sports events less as an end in themselves than as customer-acquisition moments for online casino.
That distinction helps explain why Jefferies analyst David Katz treated the post-earnings decline as an entry point rather than a thesis break. The company’s second-quarter results showed rapid growth, but the market focused on the cost of sustaining that growth and the risk that 2026 soccer activity would create difficult comparisons in 2027. RSI management has argued the spending is deliberate, aimed at acquiring players who can migrate into higher-value casino products.
A casino-first model became the core argument
The company’s current investor narrative dates to its first-quarter update, when executives credited record results to a casino-first strategy that drove record first-time depositors. CEO Richard Schwartz described online casino as RSI’s fundamental differentiator, while Chief Financial Officer Kyle Sauers said the company was acquiring players faster and at lower rates per player. That mattered because igaming tends to produce more consistent customer behavior than sports betting, where margins can swing with outcomes and promotions.
RSI’s management framed the model as cumulative rather than opportunistic. Executives pointed to technology developed over more than a decade, retention-focused design and strong app ratings as reasons the company could convert new users into repeat casino customers. The same call also introduced a theme that would recur through the year: marketing costs were rising, but less rapidly than revenue, and management believed the returns justified the spend.
That setup made the World Cup a test of strategy. Because the tournament was played in the United States, Canada and Mexico, all markets where RSI operates, management saw it as an unusually broad acquisition event. The company did not present sports betting as the long-term profit engine. Instead, it viewed soccer-driven sign-ups as a way to deepen the database and cross-sell into casino, especially in Latin America.
Latin America shifted from growth market to main engine
RSI’s Latin American business became central to the bull case as Colombia and Mexico accelerated. Earlier in the year, Jefferies had described RSI as the standout among battered online gaming stocks, saying RSI remained the “easiest to own” in a weak market because of business model consistency and Latin American momentum. That view contrasted with concerns surrounding DraftKings, Flutter and Sportradar, where prediction markets and sports betting exposure complicated investor expectations.
Colombia has been especially important, though tax policy has created volatility in forecasts. RSI first benefited when a prior value-added tax expired, only to face a new levy on igaming providers. Jefferies analyst James Wheatcroft nevertheless maintained a positive view after Colombia replaced one gaming tax with another, arguing that the removal of the VAT still provided a revenue lift and that the new gross gaming revenue tax might not persist indefinitely.
That regulatory sequence shaped later earnings commentary. Management said Colombia’s suspended VAT provided a first-quarter benefit, while the new 16% special tax was expected to run through the end of 2026. Even under that assumption, executives highlighted strong performance in the market. Mexico added another layer, with revenue more than doubling in several consecutive quarters and World Cup interest expected to help acquisition.
The political backdrop also mattered. RSI and analysts watched Colombia’s election because a more business-friendly administration could reduce tax or regulatory pressure. By midyear, executives were more confident, describing the incoming government’s agenda as favorable to operators. For investors, that made Latin America not just a growth story but a policy-sensitive earnings lever.
World Cup gains raised questions about retention
The World Cup produced the kind of upside RSI had anticipated. On its July 29 earnings call, executives said the company recorded its fastest revenue growth in more than four years and that the tournament generated strong handle and hold, including a best-ever performance in Colombia. The company also said first-time Latin American World Cup customers cross-sold into igaming at a 25% rate, reinforcing the casino-first thesis.
Still, the event created a forecasting problem. Sauers cautioned that some customers joined for the cultural moment and might not remain active. That uncertainty is central to the current debate over RSI’s valuation. If World Cup-acquired customers convert into casino players, the higher marketing spend could pay back quickly and support earnings growth. If they churn, the company may face tougher comparisons and lower efficiency in 2027.
Management has emphasized that North America and Latin America played different roles in the tournament. In North America, RSI used soccer to engage existing customers across the platform. In Latin America, it was more clearly an acquisition opportunity. That distinction is important because Jefferies’ bullish view depends heavily on Latin America growing faster than the United States and delivering customers at attractive costs.
Prediction markets became a sector distraction
While RSI’s story has centered on igaming and Latin America, the wider gaming sector has been preoccupied with prediction markets. DraftKings, Flutter and Sportradar have all explored or emphasized event contracts, raising questions about competition, regulation and customer migration. At the Jefferies Nantucket Consumer Conference in June, prediction markets were the dominant topic across online gaming presentations, with operators outlining early efforts to position themselves if the market develops.
RSI has taken a more defensive posture. The company applied for a Commodity Futures Trading Commission license but said it did not intend to lean into an already crowded prediction-market sports betting field. Schwartz characterized the application as a hedge so RSI would not be caught flat-footed. That stance supported Katz’s argument that RSI has more business model consistency than peers pursuing new prediction-market revenue streams.
The distinction matters for investors because prediction markets could blur the boundaries of sports betting, affect customer-acquisition costs and create new regulatory risks. RSI executives have said they see little cannibalization, partly because the company is not focused on sharp bettors who may find event contracts more appealing. Its priority remains casino-oriented customers with stronger retention and payback characteristics.
Expansion prospects remain uneven but meaningful
Beyond Latin America, RSI’s growth case depends on selective expansion in North America. Alberta has emerged as the most immediate new market, with management saying the early outlook was encouraging and tracking ahead of Ontario at a similar stage. The launch also explains part of the higher marketing budget that concerned investors after second-quarter earnings.
U.S. igaming legalization remains slower than operators would like, but RSI has repeatedly identified Virginia, Illinois, Maryland and New York as potential opportunities. Executives have argued that state budget pressure could revive interest in online casino because it generates stronger tax revenue than sports betting. Analysts have also pointed to Maine as a possible future market, though RSI lacks tribal relationships there and timing remains uncertain.
The stakes are straightforward: RSI is trying to prove that disciplined marketing into casino-led markets can sustain growth even if U.S. legalization remains incremental and sports betting matures. A strong cash position, no debt and a $100 million repurchase authorization give the company flexibility. But the market’s reaction shows investors want evidence that Latin American growth, Alberta investment and World Cup-acquired players can translate into durable margins rather than a temporary revenue surge.
