View from the City: M&A pipeline indicates more share price growth

It seems that the stock market has been hitting all-time highs on a weekly basis lately, driven by the leading tech giants otherwise known as the ‘Magnificent Seven’ (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla). The big thematic elements driving investor excitement include AI, electric vehicles and general technological innovation.

So, where does this leave the gaming industry? Over the past 12 months, the S&P 500 is up by about 30%, while a basket of land-based gaming stocks and gaming REITs are down roughly 10%.

While the fundamentals of the land-based gaming industry continue to yield positive results, technology does not appear to be part of the investment thesis for these companies.

Moreover, the potential for economic headwinds is also a concern for investors. Following a major uptrend during the Covid-19 pandemic, share prices of gaming stocks are now more reflective of what is a stable and modestly growing business.

Switching to the digital side of dealings, the Nasdaq is up roughly 50% over the past 12 months, while a selection of B2C digital gaming companies are up 10% to 20%. The market has been kinder to digital gaming companies, specifically DraftKings and Flutter, which appear to be closing in on achieving profitability. The US digital market is heavily concentrated at the top, with FanDuel, DraftKings and BetMGM dominating.

I continue to believe consolidation through M&A will enable these companies to expand their product offerings as well as their technology footprint. DraftKings’ acquisition of Jackpocket is the most recent example of this. The most established of the big three will only continue to grow. With the prospect of California and Texas considering the legalisation of sports betting, and with the potential for igaming expansion, the sky is the limit for these companies.