RSI went public on 30th December 2020 and has a year range 10.01-26.55. Based on current RSI stock price $10.31-$10.45, and the analysis of fair values, $RSI is a buy.
Rush Street Interactive, Inc. (RSI) is an online casino and sports betting gaming company in the United States. RSI provides a range of offerings, including real-money online casino wagering, online and retail sports wagering, and social gaming.
In 2018, RSI became the first U.S.-based online gaming operator to launch in Colombia, which was an early adopting Latin American country to legalise and regulate online casino and sports betting nationally.
Their real-money online casino and online sports betting offerings are provided under BetRivers.com and PlaySugarHouse.com brands in the United States and under RushBet.co brand in Colombia. The Company operates real-money online casino and online sports wagering in New Jersey and Pennsylvania. It also operates online sports wagering in Indiana, Colorado and Illinois and provides retail sports wagering services in Illinois, Pennsylvania, New York, Indiana and Michigan.
RSI operates and/or support retail sports betting for bricks-and-mortar casino partners primarily under their respective brands
Impact of Covid-19:
During the period of stay-at-home orders, RSI’s business volume significantly increased and has continued to remain strong as many of orders were lifted. COVID-19 has also directly impacted sports betting due to the rescheduling, reconfiguring, suspension, postponement and cancellation of major sports seasons and sporting events.
The suspension and alteration of sports seasons and sporting events earlier in the year reduced customers’ use of, and spending on, sports betting offerings and caused RSI to issue refunds for canceled events. Additionally, while many bricks-and-mortar casinos where RSI operates retail sports betting have reopened, they generally continue to operate with reduced capacity. Ongoing or future closures of bricks-and-mortar casinos and certain ongoing limitations on visitations to such casinos due to COVID-19 may provide additional opportunities for RSI to market online casino and sports betting to traditional bricks-and-mortar casino patrons.
Management of RSI is expecting multiple fold growth, primarily resulting from the following five prospects:
• Golden Nugget Online Gaming Inc(GNOG): Golden Nugget Online Gaming, Inc. operates as an online gaming and digital sports entertainment company. It offers patrons to play their favourite casino games and bet on live-action sports events in New Jersey and Michigan.
• Everi Holdings Inc(EVRI): Everi Holdings Inc. provides entertainment and technology solutions for the casino and digital gaming industries in the United States, Canada, the United Kingdom, Europe, the Caribbean, Central America, and Asia.
• International Game Technology(IGT): International Game Technology PLC operates and provides gaming technology products and services worldwide. It operates in two segments, Global Lottery and Global Gaming.
• Boyd Gaming Corp.(BYD): Boyd Gaming Corporation, together with its subsidiaries, operates as a multi-jurisdictional gaming company. It operates through three segments: Las Vegas Locals, Downtown Las Vegas, and Midwest & South.
• Scientific Games Corporation(SGMS): Scientific Games Corporation develops technology-based products and services, and related content for the gaming, lottery, social and digital gaming industries in the United States and internationally.
P/E and EV/EBITDA
RSI had negative EBITDA and Earnings for 2019 and 2020, so comps analysis on standard P/E and EV/EBITDA will not be insightful.
Peer analysis with comparable companies based on P/S multiple suggests that RSI stock has a higher probability of being undervalued. RSI’s fair value by P/S analysis ranges from $6.8 to $16.89, averaging at $11.85.
By comparing RSI’s EV/Sales multiple to that of competitors, Rush Street Interactive fair value ranges for the RSI stock price from $22.2 to $30.55.
Owing to the growth prospects listed above and by going through various online resources, following assumptions can be made about RSI:
Revenue Growth Rate: Revenue growth rate is expected to be high initially owing to expansion and change in consumer behaviour and it would gradually stabilise over 10 years. Thus revenue is assumed to grow from 60% initially to 3% in the year 2030. With perpetual growth rate at 1.5%.
COGS: Cost of revenue is set at 60% - taken as the average of percentage COGS/Revenue from 2018-2020.
Operating Efficiency Increase: In year 2020, operating expenses were 148% of revenues, but this is neither sustainable not static. The high OpEx resulted from establishing strategic partnerships with firms and are not recurring costs. Here, the assumption is that after one-time partnership costs incurred during expansion and attaining the learning from experience, RSI would be able to reduced its operating expenses from 124% to 60% gradually(8% YoY).
WACC: WACC of RSI is set to 7.37%- from GuruFocus. However based on industry average beta calculation, the calculated WACC is 7.15%.
Taking into consideration the average growth rate of RSI over past years and industry average of public companies, following assumptions have been made for Asset growth rate and Liability Growth Rate for upto year 2030.
Asset Growth Rate: 10%
Liability Growth Rate: 11%
PPE Growth Rate: 7%
D/A Growth Rate: 29%
Based on above assumptions the fair value of RSI stock is $19.19. The sensitivity analysis of variation in assumptions can be checked in attachments below.
RSI Stock Analysis Summary
In summary we can say that based on the above assumptions, RSI stocks are undervalued. Below is the summarized price range of RSI stock based on various analyses, which can also be represented in football field (image attached below).
|Value Range By Analysis|
|DCF- Variance WACC and Perpetuity||11.23||36.14|
|DCF- Variance Operations and Perpetuity||11.04||28.95|