What does 2018 hold for online gambling stocks?

In just two short decades since the first online casinos stared to appear the rise of the industry has been nothing short of meteoric. Driven by various factors such as the public’s love of novelty, increasingly relaxed gambling laws, particularly in the UK, not to mention the march of technology which has allowed more and more sophisticated games to be played, its popularity shows no sign of slowing down.

You only have to look at the global figures for solid evidence of this. In 2009, the global online gambling market was worth $20.51 billion and by 2018 this figure is projected to be $51.96 billion, rising to $59.79 billion by 2020.

In the UK, which is one of the world’s biggest single markets for online gambling, figures released by the Gambling Commission found that it was the single largest sector accounting for 33% of all gambling and generating a Gross Annual Gambling Yield of £4.5 billion.

Looking forward to what 2018 holds in store for online gambling and, by association, how sound an investment it could prove to be, there are a number of factors that are likely to have an effect.

Loosening legislation

In a report produced by Technavio examining the outlook for online gambling up to 2021 it considers the potential freeing up of government restrictions to be a key driver, if and when it happens. In the US online gaming is currently only permitted in a few states, namely Nevada, Delaware and New Jersey. But there is some optimism that an increasing number of others may soon pass legislation of their own. However, the Trump administration is yet to show its hand with regards to online gambling so the way it will go is open to debate.

In the past, Trump has told Forbes magazine that online gambling, “has to happen because many other countries are doing it and like usual the U.S. is just missing out.” However, one of his major supporters and benefactors to his presidential campaign was Sheldon Adelson, CEO of the Las Vegas Sands Corp. who sees all forms of online gambling as a real threat to the casino industry and would like it stopped completely. Therefore, whether Trump supports him in this still remains to be seen.

The Brexit effect

Another issue that is likely to have a direct effect on many online gambling companies over the next couple of years is the UK’s decision to leave the EU. This might not seem immediately obvious why but the answer is simple. Many online gambling organisations have their headquarters in Gibraltar, the small, rocky outcrop off the south of Spain. As this is part of the UK, its post-Brexit status is uncertain and the population is not keen on having any closer links with Spain than is necessary. For example, a 2002 referendum found that 98.48% of residents rejected joint UK and Spanish rule.

However the potential complications of possible border controls hindering the 60% of the people who work in online gambling in Gibraltar every day, but who commute from Spain, has led many of the biggest operators to set up working parties to plan post-Brexit strategies.

Merger mania

The third element that could have an effect is the trend for mergers in the industry which was first predicted in a report on the industry published by Deloitte in 2013. Driven by the philosophy that size equals strength in a very competitive market, these first started coming to fruition in 2015 with UK businesses like Paddy Power and Betfair and Ladbrokes and Gala/Coral joining forces to make mega-organisations. So, there is a strong likelihood of many more of these deals to come over the next few years.

One company that has been both the target of and driver behind merger deals which, unfortunately, failed to work out is 888 Holdings, the company behind a number of leading brand names. However, this hasn’t affected their market performance in 2017 as the company’s share price has seen a generally upward trend over the year. A key reason for this is the huge amount of people they cater for; their online bingo site is particularly popular, allowing players to get involved while they are out and about. It doesn’t stop here either, 888 Holdings also offer sports betting, online poker and casino games.

As recently as October it also saw a sharp spike following the release of the company’s half year figures which showed that consumer revenue had increased by 6% to $242.6 million up from $229.5 million with sports revenue which increased by 35% to $33.7 million from the 2016 figure of $25 million. As a result, shareholders even received an interim dividend of 4 cents per ordinary share.

So, looking ahead to 2018, there are plenty of reasons why all the major online gambling companies could be a sound investment, not least because of the summer’s soccer World Cup in Russia which is certain to add a further boost to the rapidly expanding world of sports betting. The increasing use of Virtual Reality is also said to be set to transform the online casino experience for players and the development of mobile tech in general is sure to make online play more appealing to an even wider range of people.

If there is a word of caution, it applies to the stock market in general which has seen steady growth throughout the year. Sam Stovall, chief investment strategist at CFRA Research recently noted that the S&P 500’s daily price chart looks “eerily similar” to the 1987 chart leading up to the infamous Black Monday crash.

However, he also added the reassurance that there are enough differences between now and then for a similar collapse in prices not to be the case.

So, all things considered, investors looking for an opportunity to see potential growth in 2018 could do far worse than to look into the online gaming market – as the odds would certainly seem to be in their favour.

Summary

  • The global online gaming market is on a steady increase, estimated to be worth almost $58 billion by 2020
  • In UK alone represents 33% of total gambling market
  • Relaxed regulations could see more US states allowing it in near future
  • Trump administration’s attitude to online gambling is uncertain
  • Brexit could have an effect on companies based in Gibraltar depending ion relations with Spain
  • Many companies may also be looking for mergers, similar to ones that have already occurred
  • Sports likely to drive even more revenue in 2018 due to World Cup in Russia
  • Rising stock market prices in 2017 are similar to those in 1987 pre-Black Monday, but a repeat is unlikely
  • Overall, online gambling businesses could be a shrewd investment.

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