Expansion in the United States Would Be a Buy Signal for Score Media and Gaming
Score Media and Gaming reports third-quarter fiscal year earnings after the market closes on July 13. Analysts project the company will report negati...
Score Media and Gaming (NASDAQ:SCR) is a relative unknown in the sports betting field. That is, unless you live in Canada. There the company is the leading sports betting site. However, Score also has a small but growing footprint in the United States. As of the company's last earnings report their mobile betting site theScore Bet was operating in four states: New Jersey, Colorado, Indiana and Iowa.
The Canadian-based company reports third-quarter fiscal year earnings after the market closes on July 13. Analysts project the company will report negative earnings per share of 27 cents. That would be about a 20% increase from the negative 35 cents per share it posted in the prior quarter.
What should investors be listening for? I would be interested in two things. The first, the outlook for single-game sports betting now that Canada has approved legislation to allow it. And second, if the company is still bullish about its plans to expand in the United States.
A Bullish Outlook
Although I'm bullish on the sports betting sector, I was not familiar with Score Media and Gaming, probably because it operates almost exclusively in Canada. Nevertheless, like the United States, there is a large opportunity for sports betting in the country.
By the company's own estimates that are based on historical data, the Canadian online gaming market may deliver between $4.3 billion and $5.4 billion in annual gross gaming revenue. And in the company's home province of Ontario, the company estimates annual gross gaming revenue of between $1.7 billon and $2.1 billion. For comparison, the province has a population that would be equivalent to the fifth most populous U.S. state. And the company's mobile app, theScore Bet, reaches approximately 3.75 million Canadian users.
Investors Sold the News in June
The one thing that seemed to be holding the company, and SCR stock back, was the inability to offer single-game sports betting. That changed with the passage of bill C-218 in late June.
However, it appears that Score Media and Gaming was part of a classic "buy the rumor sell the news" event. Prior to the bill's passage, shares of SCR stock were surging higher, but after the announcement, the stock sold off by 11%. Since then, it's been trading in a narrow range where $20 is providing resistance.
This may give opportunistic investors a chance to grab this stock at a discount. Because if the analyst community is to be believed, SCR stock may have a large upside. MarketBeat shows that Score Media is covered by three analysts. The consensus price target is $47 which would be a gain of over 160% from its price as of this writing. It may also be significant that Morgan Stanley (NYSE:MS) is the latest analyst to cover the company.
A Saturated Market
Perhaps one thing that's leaving investors on the bench is the amount of competition that exists in the sports betting space. Since going public in 2019, DraftKings (NYSE:DKNG) stock is up nearly 400%. In 2020, MGM Resorts International (NYSE:MGM) launched its BetMGM app. Not coincidentally, MGM stock is up over 150%.
And FanDuel is also expected to go public at some point, although it appears that initial public offering (IPO) will be delayed until at least 2022.
Guidance Will Be Key
On the company's last earnings call, it spoke of expanding its footprint in the United States. At that time it was only in four states. However, it was optimistic that it could double that number, or more, this year. And in fact, the company was talking about contracts with the states of Illinois and Arizona.
If the company announces further progress on this front, I see it as being a bullish indicator for speculative, risk-tolerant investors. The company is a dominant player in the Canadian market and more penetration in the United States may even make it an attractive takeover target.
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