What happened
Shares of Rush Street Interactive (RSI -2.76%) were down 21.9% as of 12:44 p.m. ET on Thursday. The online casino and sports betting company reported a weaker-than-expected quarter that sent the shares tumbling.
So what
On the surface, revenue growth looked strong, increasing by 31% year over year. But that is a significant deceleration over the previous quarter's 57% top-line growth rate.
More concerning from the market's perspective are the losses on the bottom line. Rush Street reported a loss of $38 million, and as we've seen lately, the market hasn't had much patience for highly valued stocks that don't show growth in profitability.
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Rush Street's results are in stark contrast to Scientific Gaming. The latter recently posted revenue growth of 20% and a significant jump in net profit for the fourth quarter. That helped send shares of Scientific Gaming up sharply after earnings.
Now what
Rush Street's guidance didn't give investors much reason to be more bullish on the company's prospects. Management is calling for revenue to decelerate further to 24% for the full year in 2022.
CEO Richard Schwartz addressed the concerns about the company's profitability on the earnings call with analysts. "We've been focused on building a sustainable long-term business with profitability as our central goal since founding [Rush Street Interactive] nearly 10 years ago," Schwartz said.
The company recently launched its iOS sportsbook-casino app at the end of 2021 and plans to expand into Canada and Mexico this year. Investments in new markets might continue to weigh on profitability in the short term. Over time, the improving profitability from existing markets could outweigh the expenses to penetrate new markets.
The stock is currently 62% off its all-time high, but the founders of the company own more than half of the outstanding shares. That skin in the game gives management an incentive to grow the long-term value of the business, so perhaps the concerns over profitability are overblown. Investors might want to take a wait-and-see approach, regardless.
