Rush Street Interactive exceeds Wall Street expectations

May 3, 2023 8:46 PM

Rush Street Interactive exceeds Wall Street expectations

Photo: Rush Street Interactive
  • David McKee, CDC Gaming Reports
May 3, 2023 8:46 PM
  • David McKee, CDC Gaming Reports
  • Europe
  • Latin America
  • United States
  • Ontario

Although management disagreed, stock analysts were pleasantly surprised by Rush Street Interactive’s first-quarter earnings. Rush Street posted a 20 percent revenue increase from 2022, recording first-quarter revenue of $162.4 million and a net loss of $24.5 million, a significant reduction from last year’s $52.3 million.

“We were very pleased with the performance of Q1 on revenues,” said CFO Kyle Sauers. “Obviously, we beat the [stock] market, which is always good to do.”

“We remain disciplined in how we allocate our marketing spend,” said CEO Richard Schwartz, by way of further explanation. He added that RSI’s business model is “centered around our deep understanding of online-casino customers.” Schwartz hinted at opportunities for long-range expansion and profitability growth, but even when repeatedly pressed by analysts, he didn’t elaborate.

Rush Street executives expect their company to become return-on-investment (ROI) positive in the second half of 2023 when football season kicks into gear. The negative ROI was $8.7 million, smaller than anticipated and an 80 percent reduction from last year. Sauers forecast a second-quarter revenue dip, given the comparative paucity of  sports events.

Although RSI is shifting its emphasis on marketing and spending from sports-betting-heavy states to ones with Internet casinos, of new markets this year so far there were none to report. Still, Schwartz said he saw “a significant amount of progress” in state legislatures, with six online-casino bills being introduced. “Regardless of the near-term emotions, there is progress being made,” Schwartz averred. He expects RSI to benefit disproportionately from any expansion of igaming, due to its “oversized” exposure to that audience, relative to sports betting.

The company is winding down its operation of the Connecticut Lottery, a subject on which Schwartz and Saucers were badgered repeatedly by analysts, who read apocalyptic portents into it. Schwartz said the change would make RSI more profitable.

“In any market, we have to see appropriate return on investment,” he explained. “We’re comparing all opportunities globally. Our goal is to continue to improve our sports-book experience.”

“It’s an ongoing evaluation,” added Sauers, who said that Connecticut “had some things about it that made it very particular” and not to expect “a run on market exits.”

“Our marketing expenses came down considerably this quarter,” Schwartz continued, given the large number of new-market debuts now in the company’s rear-view mirror. Marketing spend, Sauers said, was $49.4 million, as the company shifted from player acquisition to an emphasis on the more profitable player retention. Rush Street ended the quarter with $174 million on hand and no debt. Sauers’s revenue guidance for the entire year is $630 million to $700 million.

Asked about sitting out sports betting in Massachusetts and possibly Kentucky, Schwartz rattled off a long list of market criteria without addressing either state specifically. Regarding New York State, “We’re excited to have a beachhead. That’s an incredibly exciting market for us if igaming were to be legalized,” given the size of the population and Rush Street’s brick-and-mortar casino in Schenectady.

“We were pretty modest in our efforts,” opined Schwartz of the first-quarter Ohio sports-betting launch. He said that the company has changed that marketing emphasis to try and recoup its investment more rapidly and he wants to make sure ROI follows quickly in such territories.

Schwartz was asked if icasinos were improving.

“What’s intimidating is that in most cases, there’s very little innovation or differentiation,” he replied. He attributed this dearth to the heavy importation of third-party content. “But it’s early innings yet” and RSI’s online amenities should create “incremental chances to win” for players. “We like to create fun, additional [events] on casino games, and that makes experiences unique.”

In early April, RSI launched a first-of-its-kind online slot tournament in Michigan, “aptly named the BetRivers Michigan Million,” Schwartz remarked. As for RSI’s sports books, they’re seeing significant increases in bet sizes and same-game parlays, the execs reported.

Sauers agreed that Michigan and Ontario were going to be the biggest drivers of igaming revenue enlargement, adding, “We’re also seeing some nice growth in some of our sports-book-only markets.” Pennsylvania, Schwartz interjected, saw “a strong start” to igaming, but it’s a more diluted jurisdiction, due to an unlimited number of licenses.”

In Latin America, RSI revenues grew more than 100 percent from this time last year (as they did in recently launched North American jurisdictions), although the boost from Colombia to Rush Street was only 20 percent. This was due to a highly unfavorable currency conversion from pesos to dollars.

Regarding South America in general, Schwartz spoke in generalities, saying that the company was continuing to evaluate the legal status of gambling in countries like Brazil and Argentina, the population sizes, and the maturity of the gaming markets.

As for yet-to-launch Mexico, “We remain focused on building our foundation in the market,” Schwartz said, continuing that RSI was also “building broad access and local market acumen” in conjunction with its Mexican partner. “In terms of [revenue projections] impacting guidance, no big changes,” Sauers added.

What about Europe? United Kingdom and European gaming veteran Schwartz quickly brushed the query aside, saying, “We have a lot of knowledge and expertise in the market,” but that the Americas are much larger, so the focus is on them.