Rush Street Interactive (NYSE:RSI) Reports Upbeat Q4, Stock Soars

Online casino and sports betting company Rush Street Interactive (NYSE:RSI) reported Q4 FY2023 results exceeding Wall Street analysts' expectations, with revenue up 17.1% year on year to $193.9 million. The company's full-year revenue guidance of $800 million at the midpoint also came in 5.4% above analysts' estimates. It made a non-GAAP profit of $0.01 per share, improving from its loss of $0.11 per share in the same quarter last year.

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Richard Schwartz, Chief Executive Officer of RSI, said, “We concluded 2023 with a fourth quarter that produced records in both revenues and adjusted EBITDA. For the year, we grew revenue to $691 million on strong customer engagement and retention. At the same time, we improved our Adjusted EBITDA by $100 million compared to the prior year. These results and the ensuing momentum have carried into strong guidance for the new year, reflecting our longstanding customer-centric principles and obsession with developing innovative and differentiated user experiences."

Specializing in online casino gaming and sports betting, Rush Street Interactive (NYSE:RSI) is an operator of digital gaming platforms.

Casinos and Gaming

Casino and gaming companies that offer slot machines, Texas Hold ‘Em, Blackjack and the like can enjoy limited competition because gambling is a highly regulated industry. These companies can also enjoy healthy margins and profits-have you ever heard the phrase ‘the house always wins’? Regulation cuts both ways, however, and casino and gaming companies may face stroke-of-the-pen risk that suddenly limits what they do or where they can do it. Furthermore, digitization is changing the game, pun intended. Whether it’s online poker or sports betting on your smartphone, innovation is forcing casino and gaming companies to adapt to keep up with changing consumer preferences such as being able to wager anywhere on demand.

Sales Growth

A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one may grow for years. Rush Street Interactive's annualized revenue growth rate of 81.5% over the last four years was incredible for a consumer discretionary business.

Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Rush Street Interactive's recent history shows its momentum has slowed as its annualized revenue growth of 19% over the last two years is below its four-year trend. 

We can better understand the company's revenue dynamics by analyzing its number of monthly active users, which reached 160,000 in the latest quarter. Over the last two years, Rush Street Interactive's monthly active users averaged 16.9% year-on-year growth. Because this number is lower than its revenue growth during the same period, we can see the company's monetization has risen.

This quarter, Rush Street Interactive reported robust year-on-year revenue growth of 17.1%, and its $193.9 million of revenue exceeded Wall Street's estimates by 8.4%. Looking ahead, Wall Street expects sales to grow 9.7% over the next 12 months, a deceleration from this quarter.

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Operating Margin

Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Given the consumer discretionary industry's volatile demand characteristics, unprofitable companies should be scrutinized. Over the last two years, Rush Street Interactive's high expenses have contributed to an average operating margin of negative 13.7%.

In Q4, Rush Street Interactive generated an operating profit margin of negative 1.8%, up 15.3 percentage points year on year.

Over the next 12 months, Wall Street expects Rush Street Interactive to shrink its losses but remain unprofitable. Analysts are expecting the company’s LTM operating margin of negative 7.5% to rise to negative 2.6%.

Key Takeaways from Rush Street Interactive's Q4 Results

We were impressed by how significantly Rush Street Interactive blew past analysts' revenue, operating margin, and EPS expectations this quarter. That was driven by more monthly active users than expected in its U.S. and Canada geographies (360 million vs estimates of 151 million). Off the strength of this quarter, management shared encouraging full-year revenue guidance of $800 million, clearing Wall Street's projections of $759 million. Zooming out, we think this was a great quarter that shareholders will appreciate. The stock is up 6.9% after reporting and currently trades at $5.75 per share.

Rush Street Interactive may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.