Rush Street Interactive (NYSE:RSI) Reports Upbeat Q3, Stock Soars

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Online casino and sports betting company Rush Street Interactive (NYSE:RSI) beat Wall Street’s revenue expectations in Q3 CY2024, with sales up 36.6% year on year to $232.1 million. The company’s full-year revenue guidance of $910 million at the midpoint also came in 3.2% above analysts’ estimates. Its non-GAAP profit of $0.05 per share was also 505% above analysts’ consensus estimates.

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Rush Street Interactive (RSI) Q3 CY2024 Highlights:

• Revenue: $232.1 million vs analyst estimates of $207.4 million (11.9% beat)
• Adjusted EPS: $0.05 vs analyst estimates of -$0.01 ($0.06 beat)
• EBITDA: $23.39 million vs analyst estimates of $9.49 million (146% beat)
• The company lifted its revenue guidance for the full year to $910 million at the midpoint from $880 million, a 3.4% increase
• EBITDA guidance for the full year is $84 million at the midpoint, above analyst estimates of $68.66 million
• Gross Margin (GAAP): 34.8%, up from 31.6% in the same quarter last year
• Operating Margin: 2.8%, up from -6.9% in the same quarter last year
• EBITDA Margin: 10.1%, up from 2.4% in the same quarter last year
• Monthly Active Users: 168,000 at quarter end
• Market Capitalization: $881.8 million

Richard Schwartz, Chief Executive Officer of RSI, said, “We are excited to report that we have achieved another quarter of exceptional performance, setting new quarterly records in both revenue and adjusted EBITDA. Our third quarter revenue surged by 37% year-over-year, and our adjusted EBITDA increased more than fivefold from the same period last year. These record results highlight the effectiveness of our strategic initiatives and ability to execute. Our focus on innovation to attract and retain high-value players continues to drive significant growth and profitability.”

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

Gaming Solutions

Gaming solution companies operate in a dynamic and evolving market, and the digital transformation of the gaming industry presents significant opportunities for innovation and growth, whether it be immersive slot machine terminals or mobile sports betting. However, the gaming solution industry is not without its challenges. Regulatory compliance is a crucial consideration as companies must navigate a complex and often fragmented regulatory landscape across different jurisdictions. Changes in regulations can impact product offerings, operational practices, and market access, requiring companies to maintain flexibility and adaptability in their business strategies. Additionally, the competitive nature of the industry necessitates continuous investment in research and development to stay ahead of competitors and meet evolving consumer demands.

Sales Growth

Examining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Rush Street Interactive’s 79.6% annualized revenue growth over the last five years was incredible. This is a useful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Rush Street Interactive’s annualized revenue growth of 24.5% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong.

This quarter, Rush Street Interactive reported wonderful year-on-year revenue growth of 36.6%, and its $232.1 million of revenue exceeded Wall Street’s estimates by 11.9%.

Looking ahead, sell-side analysts expect revenue to grow 9.5% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates the market believes its products and services will see some demand headwinds.

Cash Is King

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Rush Street Interactive has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.6%, lousy for a consumer discretionary business.

Key Takeaways from Rush Street Interactive’s Q3 Results

We were impressed by how significantly Rush Street Interactive blew past analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 6.5% to $11.45 immediately after reporting.