Key Points
It's tough to gain an edge on Kalshi and Polymarket, but there's another way to profit from their rise.
Genius Sports is the picks-and-shovels play among both sports betting and prediction market stocks.
Despite poor past performance, current trends and an upcoming merger could serve as an inflection point for shares.
Prediction markets like Kalshi and Polymarket have revolutionized sports betting. They have also opened the door to wagering not only on sporting events but also on political, news, and entertainment events.
Dabbling in prediction markets is likely to be an unprofitable endeavor for most individuals. A community of elite traders is already dominating these markets. New entrants face a steep learning curve and likely lack the resources or connections to gain an edge.
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However, what if you didn't need to become a top trader to profit from this trend? Kalshi and Polymarket themselves may remain privately held, but there is a public company out there that is already profiting from their rise, yet is trading at multiyear lows. The sports stock I'm talking about is Genius Sports(NYSE: GENI).
Image source: Getty Images.
Picks and shovels is Genius Sports' approach
Admittedly, the line between "CFTC-regulated prediction market" and sportsbook is a bit blurry, especially as sportsbook operators like DraftKings and Flutter Entertainment's FanDuel throw their hats into the prediction markets ring.
However, that's the beauty of Genius Sports versus the other sports betting stocks. It's neither a sportsbook nor a prediction markets operator. Rather, this U.K.-based technology company considers itself "the operating system of modern sport," providing the backend technology stack for sports wagering and prediction markets.
Genius Sports not only provides the data and analytics necessary to set sharp pre-game odds, it also provides and verifies in-game data necessary to facilitate live wagering and trading.
In essence, Genius Sports is the ultimate pick-and-shovel play. (For those unfamiliar with this phrase, recall the California Gold Rush of 1849: While just a few prospectors made money, those who supplied picks, shovels, and other mining equipment all profited during the boom.)
Knocked down for now, but not for long
Interestingly enough, as the rise of prediction markets keeps making headlines, Genius Sports shares have been trending lower over the past year. Year to date alone, shares have dropped by over 60%. However, this may be due largely to investors focusing too much on past losses, completely ignoring a possible inflection point.
Now scaled up to profitability on an adjusted EBITDA basis, incremental revenue growth could have an outsize impact on the bottom line. Furthermore, alongside its pick-and-shovel sports data business, Genius has built a sports adtech business. This sideline will soon become an even more important segment of its overall business.
Back in February, Genius announced plans to acquire sports media company Legend for $900 million, plus an additional $300 million earnout for Legend's sellers. Post-merger, this deal could increase Genius' adjusted EBITDA from $190 million to as much as $320 million, while raising operating margin from 23% to 30%.
Analysts already anticipate this will have a tremendous impact on earnings. Sell-side forecasts believe earnings could hit $0.28 per share in 2027 and $0.60 per share in 2028. With the stock trading for just under $4.50 per share today, an epic rebound could be just around the corner for Genius. With this opportunity still largely under the radar, now may be the perfect time to start building a long-term position in this growth stock.
Should you buy stock in Genius Sports right now?
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Thomas Niel has no position in any of the stocks mentioned. The Motley Fool recommends Flutter Entertainment Plc and Genius Sports. The Motley Fool has a disclosure policy.
