Are Online Gambling Stocks a Worthwhile Investment for 2018?

There is an age-old expression in Las Vegas and elsewhere there are gambling establishments: The Only Winners Are the Casinos. True to form, casinos and online casinos have a built-in advantage, known as a house edge. This ensures that they prosper over the long-term. Of course, in the short-term anything can happen, and players can certainly mint it in style. The house edge is expressed as a percentage in each game, and is calculated in the following way: 1 – RTP.

If the return to player (RTP) in a typical online slots game is 96%, it stands to reason that the house edge is 4%. For every $1 wagered by the player, the house will win $0.04, or the player will receive $0.96 over the long-term. Given this fact, many investors are now open to the possibility of ploughing capital into the lucrative online gambling market. But they’re not doing it from the player’s perspective, they’re doing it at company level via stocks. According to Statista, the value of the global online gambling market in 2015 was $37.91 billion, and it is expected to hit an estimated $60 billion by 2020. The size of the North American online gambling market in 2015 was $4.89 billion, and is expected to swell to $8.66 billion by 2018. An even more encouraging statistic is that the global online gambling market is expected to rise to $81.71 billion by 2022 with a compound annual growth (CAGR) rate of 10.8%.

Mobile gambling revenues are driving the online gambling industry in a big way. However, this industry is geographically focused on a few key areas. To date, some 80 countries and territories around the world have moved to legislate online gambling activity. The most robust gambling market in the world is Europe with increasing liberalization of online gambling activity across all sectors. Countries like Singapore have banned all forms of online gambling, as the government adopts a no-nonsense approach to this sector. While online gambling remains the most hyped component of the global market, land-based gambling dwarfs online gambling in a big way. Africa and Asia are behind the eight ball when it comes to online gambling legislation, while the Americas and Europe are leading the charge.

Increasing Liberalization of Online Gambling Regulation Is Fuelling the Online Gambling Market

Of all the online gambling enclaves in the world, there is no bigger prize than the United States. Heading into October 2017, just 3 US states regulated online gambling activity: Delaware, Nevada, and New Jersey. By November, there was a paradigm change in online gambling activity. Now, Pennsylvania has entered the scene, increasing the number of eligible online gamblers by 10 million people. PA governor Tom Wolf signed the gambling bill into law, allowing online poker, online casino and daily fantasy sports betting in the state. Given that New Jersey, Delaware and Nevada are already locked in an interstate compact, the inclusion of Pennsylvania will dramatically enhance the profitability of the online gambling industry in the US.

Major industry players in online gambling include Caesars Interactive Entertainment (CIE) and 888 Holdings PLC. As at October 31, 2017 the New Jersey online gambling market had surpassed $200 million in revenues. With 2 months to go before the end of 2017, an additional $40 million is expected to be added through online gambling revenues. Year on year (October 2016) the New Jersey gambling market had generated revenues of $196 million.

The growth is attributed to the success of marketing campaigns, and the wider liberalization of online gambling in the United States. Already, Illinois is set to vote on legalizing online gambling on January 3, 2018 when the House and Senate reconvene for the new year. There are currently some 24 million eligible players in the United States from regulated online gambling states, and once the industry reaches critical mass it will be impossible for federal regulators to overturn state-sanctioned online gambling activity.

Current Online Gambling Company Stocks 

Several leading players in the online gambling arena have made a major impact on the stock markets. Leading the charge are the following major London Stock Exchange (LSE) listed betting companies:

Playtech PLC

  • Playtech PLC (LON: PTEC) was trading at 835.71 p (November 16) with a 3-month performance of 985.5000 p on August 16, 2017. Playtech has generated revenues of £580.31 million as at December 31, 2016, with pre-tax profits of £164.06 million and 53.81 p earnings per share (EPS).

Betsson AB 

  • Betsson AB (ORPT: LSE) was trading at 59.2500 SEK on November 15, 2017. The stock was trading at 76.0000 SEK on August 16, 2017. The steep drop over one year has seen the price tumble from 87.1500  SEK year on year.

Ladbrokes Coral Group PLC

  • Ladbrokes Coral Group PLC ORD is currently priced at 132.7000 p (November 15, 2017). Over the past 3 months, Ladbrokes stock has risen from 118.0000 p to its current level. The company’s revenues reached £1.5079 billion on December 31, 2016, with a 6.60 p earnings-per-share. The profit for the period ending December 2016 was £-204.30 million, indicating that there is restructuring taking place at the company.

888 Holdings PLC 

  • 888 Holdings PLC is currently trading at 247.5000p (November 16, 2017). Over the past 3 months the stock has whipsawed but remained range-bound between 241 p and 258 p. 888 Holdings PLC has steadily increased revenues every year since 2012, with £237.18 million in 2012, £257.26 million in 2013, £276.68 million in 2014, £302.46 million in 2015, and £385.81 million on December 31, 2016 with over 61% of the revenues derives form the famous 888casino. The company’s EPS as at December 31, 2016 was 12.89 p.

FIFA World Cup 2018 Set to Boost Global Online Gambling Market

Outside of the United States, the United Kingdom remains a bastion of strength for online gambling activity. Some of the biggest vendors in the gambling market include GVC Holdings, Ladbrokes Coral Group, MGM resorts, Unibet Group, 888 Holdings, William Hill, Paddy Power, Bwin. Party, and The global online gambling market is segmented into 4 major categories including online sports betting, online poker, online lottery games, and online casino games.

In 2018 the online gambling industry set to explode with the upcoming FIFA World Cup championships taking place in Russia. Further, the online gambling market is segmented according to desktop-based play and mobile (iOS and Android) gaming. During 2016, desktop-based online gambling games dominated the market, but mobile is taking an increasingly larger share of online gambling activity. The gambling market is divided into geographic segments notably APAC (Asia-Pacific), the Americas (North and South America), and EMEA (Europe, Middle East and Africa).

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