Last year was a bit of a bust for investors interested in the gaming and online gambling industries, but the future is still very bright, according to Haywood Capital Markets analyst Gianluca Tucci, who delivered a Gaming, iGaming & Media 2023 Outlook report on Thursday.
Tucci recommended three stocks in the space with Buy ratings and plenty of upside after a corrective year in 2022: Bragg Gaming Group (Bragg Gaming Group Stock Quote, Charts, News, Analysts, Financials TSX:BRAG), Playmaker Capital (Playmaker Capital Stock Quote, Charts, News, Analysts, Financials TSXV:PMKR) and Enthusiast Gaming (Enthusiast Gaming Stock Quote, Charts, News, Analysts, Financials TSX:EGLX).
After two years of accelerated growth during the stay- and play-at-home COVID periods of 2020 and 2021, this past year was a relative slowdown in gaming, Tucci said, although the path ahead is still wide open. The global gaming market is expected to reach US$546 billion by 2028, representing a 13.2 per cent CAGR from 2021 levels. Likewise, the global online gambling and betting market is expected to grow to US$146 billion by 2030 for a 12 per cent CAGR.
Tucci said interest is focused on the US market where more and more states are legalizing live sports betting, which is currently legal in 31 states and the District of Columbia, with four more states with laws in place and a launch imminent. And even with three of the biggest states (Florida, California and Texas) still outside the ring, there’s big money in the space, Tucci says.
“The legal markets in the US together generated above US$45 billion in handle in the first half of 2022, up over 90 per cent year-over-year. Operators have won more than US$4 billion from gamblers during this period. PlayUSA predicts just under US$100 billion in handle across regulated markets in the USA in 2022,” Tucci wrote.
On the media end, 2022 was also a relative downturn compared to the outsized growth in previous years. And Tucci said signs are pointing to continued sluggishness is 2023, pointing to research projecting 3.7 per cent year-over-year growth in the US ad market this year.
On Gaming, in particular, Tucci said cloud gaming is looking like the future of the industry, with the analyst noting tech coming from Tencent and Logitech last quarter, the G Cloud, while gaming hardware manufacturer Razer is about to debut its Razer Edge 5G.
As for Tucci’s favoured companies, the analyst called Bragg Gaming a highly scalable B2B iGaming platform which is likely to keep growing as the company enters new markets and penetrates further into existing ones, while the opening of new gaming markets in the US would be clear catalysts for the stock going forward.
“We look for BRAG’s material valuation gap to intrinsic value to close via an organic re-rate or an M&A event,” Tucci said. “A depressed relative valuation coupled with a sector that continues to aggressively spend on CAC bodes well for consolidation themes.”
On Playmaker Capital, which connects sports fans to betting companies through its stable of sports media brands, Tucci said the company has a solid M&A track record, with 15 acquisitions to date, along with organic growth. He called PMKR’s current valuation attractive for a focused growth company.
“As we look forward, the hyper-competitive nature of iGaming and the race for users is a solid tailwind for PMKR that should provide organic estimate/valuation support,” he said.
Finally, Tucci said while Enthusiast Gaming has done well to monetize viewers across its network of gaming-related websites, a related valuation lift has yet to follow. Tucci said the stock should begin trading on key performance indicator growth and fundamentals once a formal CEO is announced and the overhang is removed.
“We continue to view EGLX as a misunderstood and misvalued growing gaming and media company,” Tucci said. “We view current valuation as materially undervaled in the context of a company that is focused on turning adjusted EBITDA profitable who has the available capital to execute its business plan.”
Stock: Bragg Gaming Group
Haywood Rating: Buy
Target Price: $14.00
12-month projected return to target: 159 per cent
Stock: Playmaker Capital
Haywood Rating: Buy
Target Price: $1.10
12-month projected return to target: 139 per cent
Stock: Enthusiast Gaming Holdings
Haywood Rating: Buy
Target Price: $4.00
12-month projected return to target: 419 per cent