We recently published a list of 10 Best Sports Betting Stocks to Buy Now. In this article, we are going to take a look at where Genius Sports Limited (NYSE:GENI) stands against the other sports betting stocks.
A U.S. Supreme Court decision in 2018 set off a sports betting boom that legalized wagering in 38 states and the District of Columbia. North Carolina legalized sports betting on March 11, and within the first 12 hours of the law’s implementation, the state wagered a remarkable $23.9 million. Of these, 30 states allow online sports betting, so if you’re within state lines, the thrill is only a click away. While most states have a minimum age of 21, a handful allow 18 or older.
Consumers can now bet from anywhere as long as they are physically present in the state due to the growth of online platforms. As a result, Americans legally wagered a record $119.84 billion on sports in 2023, up 27.5% from 2022, per the American Gaming Association’s Commercial Gaming Revenue Tracker, ushering in a new era for sports gambling in the US. Consequently, the sports betting industry’s revenue grew to $10.92 billion, a 44.5% YoY increase from 2022. The expansion was predominantly driven by continuing maturation in most existing markets as well as some new ones, including Massachusetts and Ohio. The trend is expected to continue, and in the second quarter of 2024, American sports wagerers wagered $31.75 billion. Revenue from it was $3.16 billion for the quarter, increasing 35.3% from the previous year.
While the United States is at the top of the Biggest Gambling Countries in the World, there are still 12 states in the US that do not allow legal sports betting, including California, Texas, Idaho, Utah, Minnesota, Missouri, Alabama, Georgia, South Carolina, Oklahoma, Alaska, and Hawaii.
Nonetheless, sports betting is one of the fastest-growing industries in the world. Jane Bokunewicz, director of the Lloyd Levenson Institute at New Jersey’s Stockton University, which studies the gambling industry, points out that legal sports betting could be appealing to people with limited discretionary budgets since it offers a new and inexpensive form of entertainment.
Goldman Sachs Research also states that the U.S. sports betting market is expected to grow significantly and, once it reaches maturity, could reach $45 billion each year. This growth will be prompted by new state openings and a growing share of consumer spending on sports betting, per Ben Andrews, head of leisure and travel research at Goldman Sachs in Europe, where legal sports betting has a longer history.
When it comes to consumer spending on sports betting, gambling interest reflects a sport’s popularity, with NFL football dominating in the United States. In 2023, over 73 million Americans said they planned to bet on the NFL season, which is almost 60% more than the previous season, according to a survey conducted by the American Gaming Association.
Globally, nearly one-third of people worldwide engage in sports betting at some point in their lives, based on the TGM 2022 Global Gambling and Sports Betting Survey. In 2021, 17% of people bet on sports with friends (mainly on football and horse racing), while 35.44% bet on sports, and 20.2% bet online/through applications.
According to Deloitte’s 2024 Sports Industry Outlook, generative AI is projected to dramatically impact sports betting in the next 12-18 months. The way sports fans interact with sports betting will probably undergo a revolution because of innovations in domains like personalized betting experiences, odds calculation, real-time data analysis, and improved prediction models.
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Genius Sports Limited (NYSE:GENI)
Number of Hedge Fund Holders: 28
Genius Sports Limited (NYSE:GENI) is a sports data rights aggregator that supplies live sports data to sportsbooks for over 200,000 events worldwide. Official data rights to leagues such as the NFL, FIBA, MLB, and most notably the EPL have been locked up by GENI through at least 2028.
The primary function of the company’s technology is to gather, organize, and disseminate real-time sports data and analysis to different stakeholders, including media outlets, sportsbooks, and leagues. This is a duopolistic industry that GENI and Sports Radar share, though each company usually has exclusive rights to the sports or leagues that they work with.
The sports data rights aggregator company is well-positioned to continue to gain from the increased legalization of sports betting and the expansion of in-game betting in the US.
Voss Capital stated the following regarding Genius Sports Limited (NYSE:GENI) in its first quarter 2024 investor letter:
“We expect the company to maintain >20% organic revenue growth with >50% incremental EBITDA margins over the next few years. If correct, we believe we are paying < 10x 2027 FCF at today’s market prices.
GENI’s new BetVision was only recently launched in September 2023, and it enables in-game bets for the NFL with low latency as well as calculating and displaying real-time analytics and odds. In-game betting makes up 25% – 30% of bets in U.S. football vs 80%+ in the more mature UK soccer betting market. We believe NFL games, which comprised 96 out of the top 100 viewed television programs last year, lend themselves even more to in-game betting with more potential variables/events than soccer. Key to the thesis is that GENI’s take rate for in-game bets (5% – 6%) is 3x higher than the take rate on facilitating pre-game bets (1.5% – 2.0%) and comes at zero incremental cost to GENI, thus is highly margin accretive with a long runway for increased penetration to catch up to more mature regions like the UK:
“As we continue to increase the in-play betting, we directly benefit from this higher revenue share at no incremental cost, therefore, contributing to our profitability at near 100% margin.” – GENI November 13th, 2023 earnings call
It is notable that GENI has beaten and raised guidance for the last nine quarters in a row, establishing near bulletproof credibility in our minds that management does what they say will do, and yet the market remains highly skeptical of their visibility on rights costs and the scalability of the NFL and UK soccer rights that GENI pays for and recently extended, thus creating the attractive buying opportunity recently.
Our base case price target of $11.00 (>110% upside) by late 2026 uses 12x 2026 EBITDA. 12x seems conservative in the context of what we anticipate being a 40%+ EBITDA CAGR over the next few years and ultimately a 30%+ EBITDA margin business at maturity in a duopolistic industry structure. Longer term, we believe the upside is much greater.”
Citing Genius Sports Limited’s solid Q2 2024 performance and development potential, Macquarie analyst Chad Beynon maintained a “Buy” rating for the company. The company exceeded revenue and EBITDA estimates due to its growth in the betting area, margin expansion, and raised 2024 guidance. Chad also points out that, in spite of strong sales and EBITDA growth, the company is valued lower than its peers due to an exclusive arrangement that runs through the 2028–2029 season with Football DataCo.
Genius Sports is anticipated to gain momentum throughout the NFL season, putting it in a better position to benefit from the expanding sports betting market in North America, especially with its BetVision offering. In addition, the business is well-positioned in a developing industry.
It is one of the Best Sports Betting Stocks to Buy Now. Richard Mashaal’s Rima Senvest Management is the largest shareholder in the company, with 6,727,424 shares worth $36.66 million.
Overall GENI ranks 9th on our list of the best sports betting stocks to buy. While we acknowledge the potential of GENI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than GENI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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