Morgan Stanley Analysts See iGaming Climbing 17% in CAGR Through 2026

Article by : Erik Gibbs Jan 15, 2024

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Morgan Stanley has unveiled its 2024 perspective on the trajectory of the US gambling industry, anticipating a remarkable 17% Compound Annual Growth Rate (CAGR) in online revenue from 2023 to 2026.

The globally renowned investment bank and wealth management firm Morgan Stanley kicks off the year by providing insights into the future landscape of the US gambling sector.

The noteworthy forecast identifies online revenue as the “single highest growth opportunity” within consumer discretionary sectors, with an expected CAGR of 17% spanning the years 2023 to 2026.

Dedicated to technological advancements, the company acknowledged that its expectations for the online casino landscape have been tempered due to the sluggish legislative processes anticipated in 2024 and 2025.

The latter is also coupled with an expected plateau as the industry reaches the culmination of a period characterized by robust growth.

Morgan Stanley’s analysis prompted the rescheduling of several online sports betting and casino markets.

Notable adjustments include the postponement of North Carolina’s launch to mid-2024 and the shift of Maryland’s online casino market launch to the fourth quarter of 2024.

Colorado’s iGaming debut was pushed to 2026 from the initially planned 2025. Similarly, Indiana’s launch was deferred from late 2024 to 2025. Meanwhile, Iowa has been completely excluded from the firm’s considerations.

The impact of these schedule adjustments manifested in the firm’s Total Addressable Market (TAM) projections for sports betting, forecasting $13.4 billion in 2024, $15.5 billion in 2025 and $16.9 billion in 2026. Simultaneously, iGaming TAM predictions indicated an anticipated 20% growth to $7.1 billion, $8.8 billion, and $10.5 billion over the same three-year period.

It’s worth noting that the outlook excluded US states without official gambling regulations.

Renowned analysts asserted that current spending levels on sports betting in the US have surpassed those in the UK and are nearing figures observed in Australia.

With the escalating number of US states legalizing sports betting and the maturation of the market itself, Morgan Stanley anticipates these spending levels transitioning into percentages of individuals’ consumption expenditure.

This could potentially reach and surpass levels seen in mature markets. When it comes to preferred stocks, DraftKings stands out as one of the “most preferred overweights,” backed by a $40 share price target, according to the firm.

In the realm of brick-and-mortar establishments, Las Vegas Sands was singled out with a $59 price target. Meanwhile, the newcomer in the sports betting arena, Fanatics, earned the label of a “possible surprise” due to its prominent sports brand and robust technology stack.

As for the market’s established leaders, FanDuel and DraftKings are anticipated to maintain their positions by leveraging scale advantages to outpace the majority of their competitors.

Despite the impressive share returns observed in Flutter and DraftKings last year, the emergence of challengers like Fanatics, bet365 and ESPN Bet has sparked concerns about profit margins and escalated promotional activities.

In October of the previous year, Gateway Casinos, featuring its flagship property, the Grand Villa Casino, disclosed its collaboration with Morgan Stanley’s financial services and Macquarie Group Ltd. to identify suitable investors or acquirers for its properties.