The September 5, 2009, Horse Racing Business (see archives) carried a stock evaluation of Youbet.com (“Youbet.com—Buy, Sell, or Hold?”). Yesterday’s edition of the Wall Street Journal had an article titled “Youbet Keeps Fingers Crossed On Online Gambling” (September 16, 2009, page B5A).
According to the Journal, Youbet has a 29.5% share of the advance deposit wagering (ADW) market in the United States and is the only standalone ADW. About 10% of the money wagered on horse racing in the United States in 2008 was done online. Moreover, Youbet produces racing footage and racing results on an exclusive basis for CBSSports.com and ESPN.com.
The Journal pointed out that Youbet stock has risen over 160% since the beginning of 2009, from a 52-week low of 66 cents per share. The stock closed yesterday at $2.37 per share. (Actually, the stock has risen 260%.)
My evaluation in the September 5 post on Horse Racing Business was moderately negative because of the drag of Youbet’s subsidiary United Tote on earnings. In the Journal piece, Youbet management acknowledged that they would like to sell United Tote.
The central theme of the Journal article is that a few analysts are recommending Youbet stock because of the prospects of legalized online gambling in the United States. One analyst has a projected per-share target price of $3.75. Even without online gambling, Youbet, in the view of an analyst, has strong growth potential in the United States and abroad. The thinking is that online betting on horse racing will come at the expense of “seedy” off-track betting parlors. In contrast, another analyst cautioned that there is growing competition in the ADW business.
I remain skeptical that online gambling will be legalized anytime soon in the United States, even though bills have been introduced in both houses of Congress. In addition, Youbet will not have an easy time finding a buyer for United Tote at a decent price. In my view, however, the new management team at Youbet has the company on a better strategic path than their predecessors. With good fortune on the United Tote issue and a turnaround in the economy, Youbet would be well positioned.
Copyright © 2009 Horse Racing Business
[…] kani wrote an interesting post today onHere’s a quick excerptEven without online gambling, Youbet, in the view of an analyst, has strong growth potential in the United States and abroad. The thinking is that online betting on horse racing will come at the expense of “seedy” off-track betting … […]