View from the City: Shares set to soar as headwinds clear?

What a difference a year makes. Twelve months ago, online gaming shares were basking at all-time highs, buoyed by ongoing M&A, growth turbocharged by Covid and super-normal valuations for US igaming businesses (DraftKings’ market value peaked at $29bn). The sector was red hot, but alas no more. Valuations have more than halved.

So, what has changed? Regulation has played a role. The review of the Gambling Act 2005 was delayed, the personnel changed and investors have become increasingly wary of the potential costs, particularly from affordability checks.

As is the case in equity markets, uncertainty discourages any large-scale M&A until we have regulatory clarity. Growth rates collapsed post-Covid, so the optics are less exciting. And investors took the view that significant US marketing dollars aren’t a winning strategy. DraftKings is now worth $6bn, down 77% in a year.

However, the sector may look very different in six months. We believe it will likely be back to strong growth. UK regulation will probably be known. M&A will potentially be simmering again. And, smaller operators in the US could be throwing in their hand, improving prospects for larger US incumbents. Industry prospects should be healthier.

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