Please ensure Javascript is enabled for purposes of website accessibility

The Best Bets in Online Gambling

By Travis Hoium - Apr 9, 2021 at 11:58AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Put the odds in your favor in the online gambling boom.

Companies with a presence in online gambling have taken the traditional gambling world by storm over the past year. Caesars Entertainment, MGM Resorts, Wynn Resorts and others with decades of operating history have been thrown by the wayside in favor of relatively new entrants that are still yet to become household names.

DraftKings, Rush Street Interactive, Golden Nugget Online Gaming, and even Penn National have been the hottest online gambling stocks and now have valuations that rival some of their Las Vegas Strip peers. So, should your bets be on one of the newcomers or an established name in gambling? Let's take a look at the industry today.

Person betting on a mobile device at a bar.

Image source: Getty Images.

Where the gambling world stands today

To frame the comparison of online gambling companies, it's important to look at where the main players stand today. You can see below that DraftKings is by far the biggest online gambling company by revenue and valuation at Friday morning's prices, but Rush Street Interactive and Golden Nugget Online Gaming are growing quickly. 

Company Market Cap Revenue (TTM) Revenue Guidance Q4 2020 Growth Rate
DraftKings (DKNG 0.86%) $25.2 billion $614.5 million $900 million to $1 billion 146%
Rush Street Interactive (RSI 3.21%) $3.3 billion $278.5 million $420 million to $460 million 260%
Golden Nugget Online Gaming (GNOG) $1.3 billion $91.1 million $130 million to $145 million 48%
Penn National (PENN 3.42%) $16.5 billion $3.58 billion N/A (32.5%)
MGM Resorts (MGM 3.63%) $20.6 billion $5.12 billion N/A (60%)

Data source: Company filings and Google Finance. TTM = trailing 12 months. 

The table shows just how wild valuations have gotten in the online gambling business. DraftKings in particular is trading at more than 25 times 2021 guidance, and the company is far from profitable. Rush Street Interactive trades for a comparatively modest 12 times last year's sales, and Golden Nugget trades for 14 times. 

Penn National has been another hot online gambling stock after partnering with Barstool Sports last year. But it has barely started rolling out its online gambling strategy, so it's hard to judge the business today. 

What you'll notice is that there's no shortage of competitors in the market and no one is actually making a profit in online gambling. So what should investors be looking for? 

Market domination will be key

Like most tech stocks, scale is going to be everything for online gambling, so taking market share early will be critical. Building games and being approved by regulators requires upfront fixed costs, but variable costs will be extremely low because online gambling is simply a cloud technology platform. 

Where we could see the most leverage is in sales and marketing expenses. Right now, DraftKings and MGM Resorts seem to be building partnership networks with major sports leagues and high-profile partners that aim to drown out the competition. To keep up, smaller online gambling sites will need to offer more user incentives, better odds, differentiated games, or other innovations that can attract consumers. 

The other online gambling stocks

The big betting sites aren't the only ones involved in online gambling. Gan Ltd. is a solutions provider for most of the major online gambling sites. The company has built a suite of products that include customer account management, regulatory reporting, payment services, identity verification, and proprietary games. The company's revenue was just $35.2 million in 2020, but management expects 2021 revenue of $100 million to $105 million as partnerships with Wynn Resorts, Churchill Downs, Penn National, and many others start to kick in. This is a company that can ride the wave of online gambling growth without taking the risk on one operator winning long term.  

FuboTV is another company that's looking to leverage its sports viewing audience into a sports betting business. The company says it will launch a sportsbook this year and that could lead to additional revenue. But it's still unclear exactly what role FuboTV will play in this increasingly competitive market. 

There are a lot of other stocks traded in the U.S. or abroad that could also play a big role in online gambling. The Stars Group, Flutter Entertainment, Entain, 888 Holdings, Genius Sports, and many more play a role in online gambling around the world. But here I've focused on the main U.S. traded stocks that I think have the potential to grow.

Where to place your bets today

Given that scale is important in online gambling and companies aren't making money yet, there are two stocks that stand out as winners to me in this space: MGM Resorts and Gan Ltd. 

MGM Resorts is one of the market leaders in every state where it's licensed, and it's expanding as quickly as any online gambling operator. And it has partnerships with the NBA, MLB, NHL, MLS, Nascar, PGA Tour, Buffalo Wild Wings, Topgolf, and more. It's flooding the market and has the capital to capture a large share of it. 

The other stock I like is Gan. The company has the benefit of being able to grow along with smaller operators like Penn National, Wynn, Churchill Down, and others, so it's a bet on the overall industry growing. And it offers the underlying technology and services that all betting companies will need without taking the risk of taking bets itself. 

Online gambling is a hot business today, but sometimes the highest-flying stocks won't be the long-term winners. I think MGM Resorts and Gan offer the best balance of low risk with a lot of upside reward as the industry grows.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

MGM Resorts International Stock Quote
MGM Resorts International
$30.00 (3.63%) $1.05
Buffalo Wild Wings, Inc. Stock Quote
Buffalo Wild Wings, Inc.
Wynn Resorts, Limited Stock Quote
Wynn Resorts, Limited
$58.18 (2.11%) $1.20
Penn National Gaming, Inc. Stock Quote
Penn National Gaming, Inc.
$31.46 (3.42%) $1.04
Churchill Downs Incorporated Stock Quote
Churchill Downs Incorporated
$197.36 (3.04%) $5.83
Callaway Golf Company Stock Quote
Callaway Golf Company
$20.40 (0.00%) $0.00
Entain Stock Quote
$1,252.50 (0.60%) $7.50
Flutter Entertainment PLC Stock Quote
Flutter Entertainment PLC
$8,282.00 (0.46%) $38.00
The Stars Group Inc. Stock Quote
The Stars Group Inc.
Flutter Entertainment PLC Stock Quote
Flutter Entertainment PLC
$50.62 (-0.09%) $0.04
DraftKings Inc. Stock Quote
DraftKings Inc.
$11.77 (0.86%) $0.10
GAN Limited Stock Quote
GAN Limited
$2.97 (0.34%) $0.01
fuboTV, Inc. Stock Quote
fuboTV, Inc.
$2.47 (0.00%) $0.00
dMY Technology Group, Inc. II Stock Quote
dMY Technology Group, Inc. II
Rush Street Interactive, Inc. Stock Quote
Rush Street Interactive, Inc.
$4.82 (3.21%) $0.15
Golden Nugget Online Gaming, Inc. Stock Quote
Golden Nugget Online Gaming, Inc.
Eldorado Resorts, Inc. Stock Quote
Eldorado Resorts, Inc.
$38.53 (0.60%) $0.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.