Proprietary Platform And iCasino Legislation Will Shape Engagement

Key Takeaways

• Leveraging a proprietary tech platform and customer-centric strategies is key to boosting user engagement and driving revenue growth through innovative features and real-time rewards.
  
• Strategic marketing focus and monitoring legalization opportunities are crucial for maximizing revenue potential and improving net margins through efficient market spend and new market entries.
  
• Regulatory and tax challenges, along with economic and marketing pressures, could hinder Rush Street Interactive's revenue growth and profitability.

Catalysts

Operates as an online casino and sports betting company in the United States, Canada, and Latin America.

• Rush Street Interactive plans to continue leveraging its proprietary technology platform, which supports diverse and innovative product features, to stay ahead of the market and drive user engagement, leading to increased revenue and potential margin improvements.
  
• The company is actively monitoring legislation in several U.S. states and Canadian provinces for potential iCasino legalization, which could provide significant upside in their revenue projections if realized.
  
• RSI's focus on customer-centric experiences, including a unique real-time rewards system, aims to enhance player retention and engagement, contributing to higher ARPMAU and long-term revenue growth.
  
• The company is strategically refining its marketing spend, focusing on markets with high return potential, which is expected to improve marketing efficiency and drive net margin improvements through greater leverage over marketing expenses.
  
• RSI anticipates continued high growth in emerging markets like Latin America, where they experienced significant MAU increases, contributing to overall revenue growth and potentially higher overall earnings due to improved scale.

Rush Street Interactive Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Rush Street Interactive's revenue will grow by 12.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.9% today to 4.2% in 3 years time.
• Analysts expect earnings to reach $57.7 million (and earnings per share of $0.13) by about July 2028, up from $8.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 98.9x on those 2028 earnings, down from 166.0x today. This future PE is greater than the current PE for the US Hospitality industry at 24.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.85%, as per the Simply Wall St company report.

Rush Street Interactive Future Earnings Per Share Growth

Risks

• The introduction of a new tax on player deposits in Colombia could negatively impact revenue growth and adjusted EBITDA, as the company may face challenges in fully passing the cost onto customers.
  
• Any changes in taxation policies, like the suggested VAT tax in New Jersey or other states, could increase the effective tax rate on gaming revenues, impacting net margins and profitability.
  
• Potential regulatory challenges associated with the online casino and sports betting industry, especially if proposed tax increases or tighter regulations are enacted, could affect overall earnings.
  
• Continued high marketing expenditures, while showing improved efficiency, could limit net margin improvements if revenue growth does not sufficiently outpace these expenses.
  
• Exposure to currency fluctuations and economic instability in non-U.S. markets, as mentioned regarding potential currency movements, might affect overall earnings and cash flow.

Valuation

• The analysts have a consensus price target of $16.25 for Rush Street Interactive based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $18.0, and the most bearish reporting a price target of just $14.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.4 billion, earnings will come to $57.7 million, and it would be trading on a PE ratio of 98.9x, assuming you use a discount rate of 7.8%.
• Given the current share price of $14.64, the analyst price target of $16.25 is 9.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.