Draftkings Inc (NASDAQ:DKNG) and Twitch are among the most popular digital services in several growing markets. Fantasy sports is estimated to grow 8 percent in 2021, while online gambling is a $60 billion market.
While it’s tempting to invest directly in them, DraftKings and Twitch both rely on a little-known service that may have a better payoff rate.
Paysafe Ltd (NYSE:PSFE) is a global payments provider and an important component of both firms. It enables online cash payments using cards, banks, or whatever payment options your customers have. If you’re excited at the prospects of either company’s cash transaction volume, Paysafe stands to benefit from the growth of both platforms.
iGaming Market Size to Exceed $127 Billion
Online gambling (also known as iGaming) is a growing market. The catalyst to growth in online gambling was a ruling issued by the U.S. Supreme Court in 2018. That ruling relaxed federal rules and allowed online gambling in states that do not have specific laws against it. In fact, many have laws that specifically allow it.
The Wire Act of 2011 specifically enabled sports-betting, and many online casinos and others popped up in its wake. And with the Biden Administration firmly in place with a liberal-leaning Congress, most analysts expect growth for at least the next decade.
Sports betting is growing faster than cannabis legalization around the United States, and ESPN has an updated map of which states allow it or could soon. This growth rate leads Grand View Research to estimate the online gambling market will reach $127.3 billion by 2027.
That’s a bullish indicator for the market, which includes companies like DraftKings, Flutter Entertainment, and MGM Resorts International (NYSE:MGM).
Of course, investor interest already inflated many of these stocks, and you’re unlikely to get the best gains possible. And the market is getting more crowded by the minute, making it more difficult to grab a piece of that market share. There’s no telling which iGaming company will ultimately win, but analysts are bullish on the overall market.
Invest in an auxiliary company that will profit from it, like Paysafe, and you have a shovel in the gold rush.
Paysafe Has Huge Upside
Paysafe announced it’s going public through a special acquisition company, or SPAC. The deal values the firm at approximately $9 billion, which includes debt, and concluded by the end of the first quarter of 2021.
And this valuation is considered a significant discount by analysts who see the growing potential of the company. It could easily bring in 10x returns, although the timing of that feat is yet to be determined. Investors jumping in now are getting this value because of possible “SPAC burnout.”
Shares in this company are trading well under $20.00, and the company raised nearly $1.5 billion in August 2020. Much of this is based on the success of its brands, which include Paysafecard, Neteller, Skrill, and Income Access.
The company’s major investors include CVC and Blackstone, and its clients use the products for digital credit, debit, and cash transactions. It also offers prepaid cards and digital wallets, which are growing in popularity and mainstream usage.
With digital currencies and transactions becoming more prevalent (especially among the unbanked and underbanked populations), Paysafe has a huge potential upside over the next decade. Plus, as alluded to by the title, several prominent companies depend on it.
DraftKings and Twitch Depend on Paysafe
Twitch revolutionized livestreaming and forced companies like YouTube and Facebook to implement livestreaming capabilities of their own.
The Amazon-owned company ended 2020 with 63.6 percent of the streaming market, with esports and video gamers being the large majority of the platform’s users.
Although Twitch makes money from marketing, it’s the creator economy that fuels both its content and revenue. Tipping features are enabled, but subscription revenue is the real moneymaker for affiliate partner streamers.
An expert streamer can make an average of $3,000-$5,000 per month from subscribers, but that requires a secure payment method.
Paysafe has been enabling Twitch Turbo subscriptions since 2017, making it an integral part of the platform’s payment ecosystem.
The company also provided financial options in the UK for DraftKings. International payment issues aren’t easy to fix, but the company has already proven itself as a reliable vendor for each of these companies for years. As their markets grow, Paysafe’s will too – in fact, it already has.
Paysafe Financials Improving
Paysafe earned an estimated $420 million EBITDA from $1.38 billion in top line revenue in 2020, giving it a 30.4 percent margin. And its margin is forecast to rise continuously over the next decade.
By 2023, the company estimates it will have a 40 percent EBITDA.
That means it should continue to grow margins alongside the increased revenue. And it also means the intrinsic value of the company is nearly double what it is trading at today.
As the iGaming market continues to grow through state-by-state legalization, the company should see a subsequent rise in earnings. It’s growing margins off that money, making it even more valuable. This is why bulls believe Paysafe is a safe bet to 2x or more over the next few years.
Paysafe Stock: Right Place, Right Time?
Paysafe went public in early 2021 via a SPAC merger that valued it at around $6 billion. That could be one of the best SPAC deals of the year, thanks to a bright forecast for two of its biggest clients – DraftKings and Twitch.
Streaming is a profitable venture, and Paysafe is a foundational payment option for Twitch Turbo subscriptions. And iGaming is continuing exponential growth as more states legalize, making DraftKings a fast-growing company.
Paysafe will grow alongside both, while also picking up new clients. The move to online payments has businesses around the world looking for safe ways to facilitate financial transactions. So long as it provides that, Paysafe can grow in a lane ignored by traditional banks.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.