According to Goldman Sachs, the domestic online casino and sports wagering sectors are two of the most prominent consumer-relating tale. They have had an enviable compound annual growth (CAGR) for more than a decade.
The investment bank reveals one of the most ambitious total addressable market figures for iGaming and sports wagering seen to date. It cites the familiar catalysts of a favorable legislative setting and growing customer interest.
We believe that a combination of favorable regulations and consumer adoption would stimulate growth. Specifically, growth in US online sports betting and online gambling (i-Gaming) markets from $900 million/$1.5 billion today to $39 billion/$14 billion in 2033. It equates to 40 percent/27 percent CAGRs for more than a decade,” Goldman said in a client note.
The sports betting industry forecast is not only in the higher echelon relative to other research firms’ estimates. But it also exceeds what some operators predict. For example, at its recent investor day, DraftKings (NASDAQ: DKNG) reported that it believes the US online sports betting sector could be worth $22 billion in a few years, assuming complete legalization.
Putting Growth Into Context
Historically, gaming firms have been categorized as customer discretionary. It makes Goldman’s claim all the more convincing for investors and operators alike.
According to the bank, the 40 percent and 27 percent CAGR estimates assigned to online sports wagering and internet casinos, respectively, are substantially higher. It is greater than the 18 percent CAGR estimate for e-commerce excluding online travel bookings over the next decade. To put those forecasts for gaming segments into context, the bank predicts that no online retail niche will grow at a rate greater than 22 percent during that period.
In reality, one of the primary reasons Wall Street is so excited about sports betting companies is the internet. Brick-and-mortar sportsbooks have poor profit margins, while online operators have lower operating costs.
According to Goldman, “Sports betting and i-Gaming do not have physical distribution centers. Therefore, capital demands are much more restricted, especially when comparing online to off-line equivalents across categories”. “As a result, returns on invested capital have the ability to be considerably higher than in other physical commodity groups, allowing for more modest decremental margins.”
Specific Names Goldman Likes
While the field of iGaming and sports betting equities is expanding, Goldman increased price targets on four of them today. Namely, Caesars Entertainment (NASDAQ: CZR), Penn National Gaming (NASDAQ: PENN), DraftKings (NASDAQ: DKNG), and Rush Street Interactive (NYSE: RSI).
The bank’s bullish prediction comes a day after Caesars and Penn were added to the S&P 500. Therefore, becoming the benchmark’s fourth and fifth gaming names.
Goldman also emphasized the social dimensions of sports betting. He said it boosts network effects and emphasized the importance of mass media in space. Analysts are particularly interested in gaming stocks with media exposure, a strategy Penn has been praised for through its investment in Barstool Sports. Goldman lifted its price target on that stock to $153 from $139.