Rush Street Interactive Stock: Betting On Long-Term Success (NYSE:RSI)

online casino and gambling concept, hand touching shining sign 777 and dollars symbols, blue horizontal neon banner

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Rush Street Interactive (NYSE:RSI) is a casino and online sports betting and entertainment company with headquarters in Chicago, though it operates in both the US and Mexico. The company offers a wide range of gaming products that produce revenue from multiple sources worldwide. Aside from the casino games, the company also offers social gaming, involving in-game purchases from which the company obtains its revenue. The general use of mobile and online devices for everything, including bets, is driving both markets up tremendously. It is becoming increasingly easier for both small companies to set up an online presence and persuade the market. It is also becoming increasingly challenging for investors to decide what to settle on.

RSI price

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In this analysis, we will look at why Rush Street Interactive is a good buy for investors. Looking at what it has to offer, as well as the growing market and the gradual changes being made, it becomes clear that Rush Street Interactive is a company to invest in.

Industry News

The global casinos market was valued at approximately $123.4 billion in 2020. The industry is expected to grow at a compound annual growth rate of 3.7% by the year 2026 when it is expected to reach approximately $153.2 billion. The US market alone was worth $70.1 billion in 2021, followed by Asia-Pacific, which accounts for about half of that market value. The latter is expected to grow rapidly, however, at an estimated 4.5% CAGR by the end of the analysis period. Different regions contribute in different ways, with Nevada contributing the most to the casino industry, as expected. The nature of the business is slowly transitioning into a completely online business. The online market was valued at approximately $66.7 billion in 2020 and could reach $92.9 billion by 2023.

online gambling growth

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Rush Street Interactive has a rich history, having experienced different phases, which each involved the sale of several different products, some of which have today expired. The company did well to integrate its products onto online platforms, however, ensuring that the company stays on top of the game. It has since boasted impressive engagement numbers, with millions of users across multiple platforms engaging with its various products. The company continues to make progress on this front, as evidenced by some recent purchases and additional partnerships. Such partnerships include an agreement with Grupo Multimedios, a Mexican company, to expand its online casino and sportsbook announced for the second quarter of 2022.

The company also continued its expansion within the US, where it launched its online sportsbook in Connecticut, making it the third online operator in that state. The company also announced a deal with the New Orleans Pelicans to become an official sportsbook partner. The company will also need to invest in improved technology to enhance growth along with its various partnerships. A look into the company’s past revenues, areas of the business that contributed most to growth, and how RSI managed its expenses will reveal what to expect by the end of the current year.

Financials

Rush Street Interactive registered fourth-quarter earnings of $130.6 million, marking an increase from the $100 million during the final quarter of 2020 or increasing a total of 31% in that period. This was the highest quarter of the period as sales for the entire year, after rising from $123 million in the previous quarter, due to an increase in traffic experienced over the last three months. US monthly active users, or MAUs, were up about 28% in the fourth quarter when measuring year-on-year growth. However, operating income also registered an all-time high, with the company descending further down from -$17.7 million in Q3 to –$37 million in Q4. Revenue might experience a small decline in the first quarter of 2022, which is expected to have slightly less traffic compared to the end of the year.

price vs revenue

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The company spent considerably more on advertising and promotions, which rose from $23.1 million in the fourth quarter of 2020 to a total of $64 million in 2021. This all contributed to a greater net loss, from the -$5.3 million in Q3 to -$10.5 million in Q4, almost double the amount lost from the previous quarter. Overall, this resulted in the company losing a total of -$19.5 million throughout the fiscal year, a significant drop from the already poor $1 million in net income applicable to shareholders Rush Street Interactive reported by the end of 2020.

If RSI wants to stay afloat, it will need to be able to manage its income much better in the next few quarters, especially since the company has seen a consistent increase in revenue. The total revenue reported for year-end was approximately $488.2 million, compared to $278.5 million in 2020 and only $63.7 million a year before that. The annual growth of MAUs in the US alone increased by 67% for the full year. Yet the company still managed to report a total net loss of $71.1 million for the full year. Quarterly earnings can be somewhat misleading, however, as it has been implied that the company seems to be making no gains.

price vs net income

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Operating income actually slightly improved, from -$133.4 million in 2020 to a total -$94.3 million in 2022. This still isn’t enough, doing little to improve the company’s profitability, but it is still an encouraging sign that the company can continue to expand while also making progress on managing its expenses. By the end of the fiscal year, the company reported $281 million in cash and cash equivalents.

Risks

Rush Street Interactive faces stiff competition from other sports betting and online casino businesses, even as it continues to expand its reach and provide new products for the market. This is one risk factor the company will always have to deal with and can only stay relevant by continuing to provide updated products to ensure continued revenue growth.

Particular to the nature of RSI’s market, however, is regulatory threats that could threaten the business in multiple ways. This includes any possible infractions, which could result in hefty fines or even threaten entire operations. A company as large as RSI is well regulated, with entire committees and other bodies overseeing the company’s financials and business dealings, making the likelihood of any such infraction minimal. It is still something investors should keep an eye on, and critical to identifying any future incidents is keeping a close eye on the company’s board. This doesn’t only include the comings and goings of board members but also trades made within the company’s own investors, such as any significant sales.

US sports betting legality

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For now, there is no indication that the company will face any regulatory challenges ahead of them, and its current top products are doing well enough to increase sales and revenue in general. If the company can find a way around some of its expenses, balancing these out will its total income, Rush Street Interactive will prove to be a profitable company in the foreseeable future. Taxes will always be a part of the nature of the business, but the company can best prepare for this with competent management.

Conclusion

Rush Street Interactive is expecting revenues of up to $630 million by the end of 2021. The company has stated that it expects a 24% year-over-year growth in its official guidance. This guidance may be offset by some of the aforementioned risk factors, as well as the company’s expenses, but these factors can be resolved with better management strategies. Despite everything, the overall consensus is the company will continue to experience growth and is a solid buy, but bullish investors should prepare for something more long-term rather than expect a quick turnaround.

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