Genius Sports' (NYSE: GENI) stock has dropped 4.26% in the last month. Although this decline isn't as sharp as that of sportsbook customers, it indicates that investors responded to the skyrocketing volume of prediction markets. At least one expert believes that Genius has a chance in the event contracts market.
Josh Nichols, a B. Riley analyst, claims in a recent report to clients that there is potential for data providers like Genius to profit from the growth of prediction markets, especially when taking into account the popularity of those exchanges in Texas and California, two jurisdictions where sports betting is prohibited. According to Nichols, Wall Street's predictions for Genius probably don't account for those two states' total addressable market (TAM) prospects because they are the two most populous states.
"Management has indicated that current licensing economics for prediction market operators would likely be incremental, but the strategic implications extend beyond pure-play prediction platforms,” observes the B. Riley analyst.
Nichols reaffirmed his "buy" rating and $14 price target for Genius, suggesting a roughly 23% increase from current levels.
The PM Push at Sportsbooks May Help Genius Sports
The majority of Genius' income comes from supplying data to sportsbooks, even though the company is expanding with advertising and artificial intelligence (AI) services, both of which are anticipated to be long-term growth drivers.
Because traditional bookmakers are entering the event contracts market, the growth of prediction markets doesn't necessarily hurt that source of income. FanDuel has an agreement with CME Group (NASDAQ: CME), and DraftKings (NASDAQ: DKNG) just announced the purchase of Railbird Exchange. At the very least, other Genius sportsbook customers are keeping an eye on the event contracts market.
“Traditional sportsbook operators are actively entering the prediction market category, creating multiple pathways for data monetization via federally regulated product offerings,” adds Nichols.
Additionally, the analyst notes that the NHL's recent relationships with Kalshi and Polymarket, two major players in the prediction market, may open the door for data arrangements beyond those now in place with bookmakers. Businesses like Sportradar (NASDAQ: SRAD) and Genius might profit from that.
A brilliant NFL relationship could also be helpful
Football season has caused Kalshi's volume to soar, and according to some estimates, contracts for sporting events account for 90% of the company's revenue. The majority of that is undoubtedly produced by NFL games.
Kalshi recently expanded its NFL offerings to include parlays and other contracts. Because parlays, especially same-game fare, are data-intensive and Genius has exclusive data rights with the NFL, this might eventually help Genius. The largest non-institutional shareholder of the data supplier is the league.
“GENI’s market positioning also proves uniquely advantageous through its exclusive NFL data partnership and equity stake alignment, enabling real-time data for parlays and in-game betting that account for a growing percentage of betting volume,” concludes Nichols.