We recently published a list of 10 Best Sports Betting Stocks to Buy NowIn this article, we'll take a look at where Genius Sports Limited (NYSE:GENI) stands in comparison to other sports betting stocks.
A 2018 U.S. Supreme Court ruling sparked a sports betting boom that legalized betting 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 passage, the state saw a remarkable $23.9 million wagered. Of those, 30 states allow online sports betting, so if you live within state lines, the excitement is just a click away. While most states have a minimum age of 21, a handful allow 18 and older.
Consumers can now bet anywhere as long as they are physically present in the state, thanks to the growth of online platforms. As a result, Americans will legally wager a record $119.84 billion on sports in 2023, up 27.5% from 2022, according to the American Gaming Association Commercial Gaming Revenue Trackerwhich ushered in a new era for sports betting in the US. As a result, the sports betting industry grew in revenue to $10.92 billion, up 44.5% year-over-year from 2022. The expansion was primarily driven by continued maturation in most existing markets, as well as a few new ones, including Massachusetts and Ohio. The trend is expected to continue, with US sports bettors wagering $31.75 billion in the second quarter of 2024. Revenue from this amounted to $3.16 billion for the quarter, up 35.3% from the previous year.
While the United States is at the top of the Largest gambling countries in the worldThere are still 12 states in the US where legal sports betting is not allowed, including California, Texas, Idaho, Utah, Minnesota, Missouri, Alabama, Georgia, South Carolina, Oklahoma, Alaska and Hawaii.
Nevertheless, sports betting is one of the fastest-growing industries in the world. Jane Bokunewicz, director of the Lloyd Levenson Institute at Stockton University in New Jersey, which studies the gambling industry, points out that legal sports betting can be attractive to people on a budget because it offers a new and inexpensive form of entertainment.
Goldman Sachs Research also says the U.S. sports betting market is expected to grow significantly and could reach $45 billion annually once it matures. That growth will be fueled by new state openings and a growing share of consumer spending on sports betting, said 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 the popularity of a sport, with NFL football dominating in the United States. In 2023, more than 73 million Americans said they planned to bet on the NFL season, up nearly 60% from the previous season, according to a survey conducted by the American Gaming Association.
Globally, nearly a third of people have bet on sports at some point in their lives, according to 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/via applications.
According to Deloitte’s 2024 Sports Industry Outlook, Generative AI is expected to have a dramatic impact on sports betting in the next 12-18 months. The way sports fans interact with sports betting is likely to undergo a revolution due to innovations in areas such as personalized betting experiences, odds calculation, real-time data analytics and improved predictive 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 for leagues such as the NFL, FIBA, MLB and most notably the EPL have been secured by GENI until at least 2028.
The primary function of the company’s technology is to collect, organize and distribute real-time sports data and analytics to various stakeholders, including media, sportsbooks and leagues. This is a duopolistic industry that GENI and Sports Radar share, although each company typically has exclusive rights to the sports or leagues they work with.
The sports data rights company is well-positioned to continue to benefit from the increasing legalization of sports betting and the expansion of in-game betting in the US.
Voss Capital stated the following about Genius Sports Limited (NYSE:GENI) in its Q1 2024 investor letter:
“We expect the company to sustain >20% organic revenue growth over the next few years with >50% incremental EBITDA margins. If true, we believe we are paying <10x 2027 FCF at current market prices.
GENI’s new BetVision, just launched in September 2023, enables low latency in-game betting for the NFL, calculating and displaying real-time analytics and odds. In-game betting makes up 25%-30% of betting in US football versus 80%+ in the more mature UK football betting market. We believe NFL games, which comprised 96 of the top 100 most watched television shows last year, lend themselves even more to in-game betting with more potential variables/events than football. The key to the thesis is that GENI’s take rate for in-game betting (5%-6%) is 3x higher than the take rate for facilitating pre-game betting (1.5%-2.0%) and comes at no additional cost to GENI, so it’s very margin accretive with a long lead time for increased penetration to catch up with more mature regions such as the UK:
“As we continue to increase live betting, we directly benefit from this higher revenue share at no additional cost, contributing to our profitability at a near 100% margin.” – GENI earnings call, November 13, 2023
It is remarkable that GENI has exceeded and exceeded expectations for the past nine consecutive quarters. In our view, this has built almost unfailing credibility that management will deliver on its promises. However, the market remains highly skeptical about their visibility into rights costs and the scalability of the NFL and UK football rights that GENI is paying for and recently renewed. This has recently created an attractive buying opportunity.
Our baseline price target of $11.00 (>110% upside) at end-2026 uses 12x 2026 EBITDA. 12x seems conservative in the context of what we expect to be a 40%+ EBITDA CAGR over the next few years and ultimately a 30%+ EBITDA margin company at maturity in a duopolistic industry structure. Longer term, we believe the upside is much greater.”
Macquarie analyst Chad Beynon maintained a “Buy” rating on the company, citing Genius Sports Limited’s solid Q2 2024 performance and development potential. The company beat revenue and EBITDA estimates due to growth in the betting space, margin expansion and raised its 2024 guidance. Chad also points out that despite strong revenue and EBITDA growth, the company is valued lower than its peers due to an exclusivity agreement that runs through the 2028-29 season with Football DataCo.
Genius Sports is expected to gain momentum during the NFL season, putting it in a better position to capitalize on the growing sports betting market in North America, particularly with its BetVision offering. Furthermore, the company is well-positioned in an evolving industry.
It is one of the Best Sports Betting Stocks to Buy NowRichard Mashaal's Rima Senvest Management is the company's largest shareholder, with 6,727,424 shares worth $36.66 million.
General GENI is in 9th place on our list of the best sports betting stocks to buy. While we recognize GENI's potential as an investment, our conviction is based on the belief that some AI stocks hold more promise for delivering higher returns, and in a shorter time frame. If you're looking for an AI stock that shows more promise than GENI but trades at less than 5x earnings, check out our report on the cheapest AI stocks.
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Disclosure: None. This article was originally published on Insider Monkey.
