Market Leading Online Gambling Stocks Set For Longterm Profitability
Pennsylvania is now the nation's leading iGaming state. It is consistently among the top five states for sports betting.
PA became the third state to surpass $1 billion in sports betting handle in March. No state has produced more sports gambling taxes ($253.0 million through May 2022). iGaming (online casinos and online poker) produced even more in revenue and taxes through the same period. Morgan Stanley’s 2021 online casino report sheds light on the future of online betting markets in the US.
PA iGaming GGR is $2.58 billion (Second-highest in US), PA Sports Betting G GR is $1.06 billion.
iGaming is growing at a slower pace than sports betting. Legal sports gambling is live in 30 states and D.C., but only 7 states offer live, legal online casino gambling. Morgan Stanley predicts the trend will continue as there are less public and industry support and louder industry opponents.
11 legal iGaming states and 42 legal sports betting states are projected for 2025.
On a state-by-state basis, operator and tax revenue from online casinos far outpace sports betting revenues. This makes states like Pennsylvania, New Jersey and Michigan desirable destinations for operators.
2025 iGaming revenue is projected to be $7.8 billion. Sports betting revenue will be about $12. 8 billion in 2025. Pennsylvania will continue to lead the nation's i gaming revenue in the coming years.
Morgan Stanley projects PA sports betting GGR of $701 million for 2025.
PA iGaming revenue is on pace for $1.7 billion for 2022. Sports betting revenue on track for a $560 million year. In March, PA and NJ became the first states to surpass $140 million in monthly igaming revenue.
Pennsylvania is making a strong case for itself as the most successful iGaming market in the US.
Pennsylvania is a market leading online gambling market. Online gambling revenue will continue to outpace sports betting in this market and every other market where both are legally available.
Sports betting revenue will exceed iGaming revenue in 2025. Online casinos are able to reach break-even quicker in states with both sports betting and i gaming.
DraftKings, FanDuel and BetMGM are projecting 1-3 years positive payback periods for their new states. Short-term investors have deemed such timelines unacceptable. However, patience is often rewarded in high-growth industries that are still in their infancy.
DraftKings saw profits ramp up in Year 3 in New Jersey. BetMGM saw positive contribution profits in MI after 9 months. FanDuel expects net profits to kick in 12-24 months after launch.
The iGaming and sports betting stocks Morgan Stanley covers include $DKNG, $MGM, $PENN, CZR, BBYD, WYNN, and $ENT. They outperformed the S&P 500 by 82% in 2020/1H21 and by 26% 2H20.
Outperformed the S&P 500 by 82% in 2020/1H21 and by 26% 2H20. Lost $2B on online sports betting and iGaming in 2021 and is expected to lose $3B in 2022.
FanDuel, Penn National, DraftKings, BetMGM and Caesars are forecast to reach profitability in 2024.
FanDuel, Penn National, DraftKings, BetMGM and Caesars are expected to reach profitability in 2024.
NJ, PA and MI are the key early-stage states for online gambling companies. Morgan Stanley projects US sports betting/iGaming market leaders to deliver around 25% long-term margins.
AMZN, NFLX and SNAP all had similar tricky transitions from revenue to profits. Following quarters where they achieved significant margin outperformance, they returned 96% in the following year.
Sports betting/iGaming operators will start to make profits once they demonstrate profits in key early states.
DraftKings and FanDuel have been able to leverage their DFS databases to reduce CAC to around 2/3 that of competitors. The Stars Group, owned by Flutter, was able. to reduced C AC in early markets because of PokerStars. Since launch of online casinos, gaming companies are also cross-selling from loyalty databases at land-based casinos to iGaming.
As margins rise in the long term, the big winners in online gambling are likely to see stock prices rise. iGaming/sports betting companies should be achievable thanks to high LTV, lower CAC and legal igaming states.
High LTV with a focus on customer retention and lower CAC. Legal iGaming states where operators can offer the full omni-channel approach to help lower the C AC.