Many look at the online gaming business in Europe as one of the most lucrative entertainment industries in the world, and it’s certainly easy to imagine betting companies drowning in profits. With millions of online gamers pouring money into these businesses through online poker, casino activities, sports betting, etc., it comes across as the industry that never stops gaining.
However, because of ever-shifting regulations on betting, as well as competition between companies, the biggest names in betting aren’t always the sure thing investments many might assume. Early this year in a post on general investment strategy, we noted that when stock prices exceed businesses’ growth, it’s a sign that those businesses are overvalued. This may be the case with a few of the best-known betting companies.
Just last month, The Motley Fool wrote up an interesting analysis of the betting sector from an investors’ standpoint, citing regulatory hurdles as potential game changers in the market. The article introduced the idea that these regulatory hurdles could lead to shrinking profits and therefore changing valuations in the industry, but also pointed out that such shifts could lead to consolidation between different companies, which can offer opportunity to investors.
The Motley Fool article goes on to illustrate the financial picture for a number of high profile betting companies, and to summarize the data, the outlook isn’t good for the majority of them. The common thread between companies, for the most part, is that they are trading either below 2014 estimates or below their own levels from earlier this year.
Best In Class
The Betfair platform, however, is listed as one exception to the generally dire outlook, with a stock price that had, at the time of the article, risen 5% on the year. It’s one company in the betting sector that doesn’t appear to be overvalued. It’s also mentioned as a possible sound investment as well as a potential takeover target, should consolidation start to occur.
It’s worth noting that Betfair’s recently revealed fiscal numbers are looking strong, too. All of their sectors have reported increases of at least 14%, with their gaming group – found here – doing better than the company expected. As noted in their fiscal report, “The 45% year on year growth rate was also helped by the non-recurrence of weak casino margins in the comparative period.”
For the most part, The Motley Fool has painted a picture in which betting on (or rather, investing in) online betting platforms may be a risky proposition. Despite the lucrative profits that can be generated by online gaming sites, the industry will always be subject to changes and sometimes devaluation whenever new regulatory measures take effect.
However, there are also some potentially positive shifts to keep an eye on in the coming year or two with respect to the expansion of and growth in the industry.
Women Bet Too
To begin with, there’s the undeniable fact that the client base for the online gambling industry as a whole is continuing to expand. How this impacts individual companies varies in a case-by-case basis, but it remains an ongoing trend. Earlier this year, Co-Optimus reported a fairly staggering 20% rise in women participating in online gambling since 2013, and it also discussed the effect of the rise of mobile gaming.
With women now participating almost as much as men in online gaming and with gamers in general now able to access real money sites conveniently on their mobile devices, the growth of the client pool seemingly has no bounds.
Additionally, there’s the inevitable expansion of the market to the United States, where most forms of online gambling are illegal in most states. Samantha Millers of The Epoch Times wrote last month that while in 2013 only three states (Delaware, New Jersey, and Nevada) had legalized forms of online gambling, nine others have already filed legislation attempting to follow suit.
She also pointed out that there are estimations mobile gaming will be a $100 billion industry by 2017. It’s hard not to view the growth online and in mobile gambling industries as inevitable in the United States. And it’s not only because of increasingly busy movements for legalization, but also because of the raw financial potential.
The point about U.S. expansion may not seem particularly relevant in addressing the market value of prominent European gaming companies, as one might assume that U.S. casinos and companies would set up their own online gaming empires. However, there are actually already deals in place that will enable established gambling companies to have an early stake in the U.S. market.
Looking to Betfair again, they were able to reach a deal with the Caesars entertainment group to continue operating in New Jersey. The deal presumably gives Betfair one foot in the door when online gambling does expand to additional states, and this naturally indicates potentially significant growth in this and similar online gaming companies through U.S. partnerships in the near future.
Ultimately, The Motley Fool analysis of major gambling companies operating online is an entirely appropriate one for the present. Going strictly by the numbers so far this year, there are indications that some of the top companies aren’t performing as well as they should be. Before you ignore such companies entirely, however, factor in considerations for the future like continued mobile expansion and the opening of the U.S. market.