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Online Gaming Companies Worth Watching For Investors

Strategic investors are constantly looking for the next big thing. While the safest investments are often low-risk, small-reward stocks that can pay off gradually in the long term, it’s always exciting to get in on a potentially booming business. I won’t presume to have identified any such business, and I’ll always recommend caution over ambition where financial investment is concerned. However, as a point of interest, I do think the online gaming sector is worth keeping an eye on in the next year or two.

I’ll first address why betting and online gaming companies are not always the guaranteed investments one could expect from an industry that’s perceived as rolling in excess cash. To begin with, there is a great deal of competition among top companies. While competition can certainly be good for a market, it’s difficult to predict which of the major online gaming players will outperform the others at a given time. But there are also two other factors that play significant roles in the industry being somewhat unpredictable.

First, there’s the fact that laws and regulations for betting, real money gambling online, and now mobile gambling, too, seem to be shifting constantly. This immediate effects companies in the industry. And second, there’s the simple reality that luck plays a role in these companies’ gains. Just this month, City A.M. highlighted just how big an impact favourable outcomes in sporting events (favourable to the betting companies, that is) can have. The article revealed that Betfair, a major online poker and gaming site that also has a busy sports book component, reported a 30% boost in revenue this September as compared to a year ago. A significant portion of the gains are attributed to World Cup upsets over the summer. With a lot of betting favourites failing to live up to potential, the company naturally made good on a lot of consumer loss
es.

With factors like these in consideration, it’s easy to understand why the online gaming industry can be a tricky one to read or predict. At the same time, however, there’s no denying the growth in the industry as a whole. If one can identify the individual companies best poised to expand and gain revenue in the years to come, those companies could be very strong investments indeed. Here are the two key factors to look at in identifying online gaming companies well positioned for growth:


Mobile Revenue

Expansion to mobile platforms is ongoing for major players in the online gaming and betting market. For that reason, it’s actually difficult to find concrete numbers in terms of the revenue generated by mobile apps, and the potential for further growth. However, an MECN Report cited by SBC News took a stab at it last month and came up with some very interesting findings. Through the midpoint of 2014, the companies analysed by the report generated an average of 29% of their total revenue (and 43% of betting revenue) through mobile platforms. The report went on to claim that the average estimated maximum share of the total revenue these companies’ mobile platforms could reach is 57% for betting and 49% for casino gaming.

While some of these numbers are estimates, the gap between current revenue share for mobile platforms and estimated maximum share clearly shows that there is still room for these companies to grow through mobile expansion. Granted, these numbers are talking about a share in total profits, rather than an add-on to existing profits. However, to some extent an increase in mobile revenue will almost certainly mean a net increase in revenue as well.

Expansion Abroad

Meanwhile, there is the looming development of online gambling and betting expansion abroad, particularly to the United States. Currently only three states in the U.S. allow for online gambling, but legislative movements are underway in many other states to open up online gaming markets. It seems as if some version of the industry will soon exist on a broad scale across the country.

Aforementioned online gaming company Betfair has already reached a partnership with the Caesars entertainment group in America. This solidifies its position in New Jersey (where online gambling is legal) and presumably sets the company up for a share in the inevitable expansion to other states. Partnerships like these, between established European and international gaming companies and U.S. venues and entertainment industries, hold serious potential for boosting revenue in the near future.

Ultimately, there’s a lot that has to fall into place for the industry to reach its full potential. But given the scope of that potential, top online gambling companies are certainly worth a look.

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About Miles Evans

Miles is a pattern day trader from British Columbia, Canada, and has been actively seeking alpha since 1999. Outside of finance Miles is interested in web startups, programming, and the limitless wisdom of the crowd.

See all posts by Miles