Rush Street Interactive Investment Summary

RSI went public on 30th December 2020 and has a year range of 10.01-26.55. Based on the current RSI stock price of $10.31-$10.45, and the analysis of fair values, $RSI is a buy.

About Rush Street Interactive Stock

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 legalize and regulate online casinos 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 a 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 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 brick-and-mortar casinos where RSI operates retail sports betting have reopened, they generally continue to operate with reduced capacity. Ongoing or future closures of brick-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 casinos and sports betting to traditional bricks-and-mortar casino patrons.

Growth Strategies

Management of RSI is expecting multiple fold growth, primarily resulting from the following five prospects:

1. Access new geographies
2. Leveraging existing customer-level economics to increase marketing spending
3. Continue to invest in our offerings and our platform
4. Continue to invest in personnel
5. Acquisitions

Competitors

• 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 favorite 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.

Fair Value of RSI Stock

Comps Analysis:

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.

P/S

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.

EV/Sales

By comparing RSI’s EV/Sales multiple to that of competitors, Rush Street Interactive's fair value ranges for the RSI stock price from $22.2 to $30.55.

DCF Analysis

Owing to the growth prospects listed above and by going through various online resources, the following assumptions can be made about RSI:

Assumptions

Revenue Growth Rate: The revenue growth rate is expected to be high initially owing to expansion and change in consumer behavior and it would gradually stabilize over 10 years. Thus revenue is assumed to grow from 60% initially to 3% in the year 2030. With a perpetual growth rate of 1.5%.

COGS: Cost of revenue is set at 60% - taken as the average percentage COGS/Revenue from 2018-2020.

Operating Efficiency Increase: In the 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 no 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 reduce its operating expenses from 124% to 60% gradually(8% YoY).

WACC: WACC of RSI is set to 7.37%- from GuruFocus. However, based on the industry average beta calculation, the calculated WACC is 7.15%.

Taking into consideration the average growth rate of RSI over past years and the industry average of public companies, the following assumptions have been made for Asset growth rate and Liability Growth Rate for up to the year 2030.

Asset Growth Rate: 10%

Liability Growth Rate: 11%

PPE Growth Rate: 7%

D/A Growth Rate: 29%

Fair Value

Based on the above assumptions the fair value of RSI stock is $19.19. The sensitivity analysis of variation in assumptions can be checked 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 the football field.

Sources

Utradea, Sec Report, Investing.com, Yahoo Finance & MarketBeat.