The COVID crisis has nearly wiped out the movie theater business, and many experts never expect it to return to "normal." Theater chains like AMC Entertainment (AMC) - Get Report have substantial fixed costs and are generating almost no revenue, which has led to some hedge funds betting on them going bankrupt. Those funds have taken large short positions in anticipation of continued financial strain.
This aggressive short-selling was noted on social media sites like Reddit’s WallStreetBets, which tried to orchestrate a "short squeeze" in the stock. The squeeze effort lasted for just a few days, but once the stock hit $20 it was almost straight downhill from there as many “stuckholders” used the strength to escape the misery of AMC.
The short squeeze trade in AMC is over, so it's time to move on. If you find the idea of the entertainment sector appealing, then one good alternative is the gambling sector. Several stocks such as Penn National Gaming (PENN) - Get Report, DraftKings (DKNG) - Get Report, Golden Nugget Online Gaming GNOG, Elys Game Technology ELYS and Esports Entertainment Group (GMBL) have been doing extremely well as consumers look for alternative forms of entertainment, and states try to raise tax revenues by loosening up the rules for sports betting.
There is much competition in the sector, but there is one thing that all the betting firms need and that is data. To run a betting operation, it is necessary to have not only accurate scores but reams of other data to support various “prop” bets.
This approach to investing is called a “picks and shovels” play. It goes back to the gold rush days when the folks that became rich from mining were often not the miners themselves, but the merchants that provided them with the tools they needed to operate their mining businesses.
My pick-and-shovel play in the gambling business is Genius Sports. Genius Sports is not currently a stock trading on any exchange, but it soon will be. It plans to merge with a SPAC called dMY Technology Group, Inc. II DMYD. DMYD and Genius Sports agreed to merge back in late October and have been working to finalize the deal. When the merger is concluded, Genius will trade under the symbol GENI on the NYSE.
You don’t have to wait to buy it, however. You can own it now through the stock trading as DMYD, although there is some risk that the deal may not be consummated. If the deal were to fall apart, the stock would likely collapse to the $10 area, but this risk is small.
Genius Sports supplies sports betting operators with data. A good illustration of what Genius does is its partnership with the NCAA to build and implement a system called NCAA LiveStats. This system allows schools and conferences across all three divisions of college sports to capture and distribute live game statistics of all types.
Genius currently has partnerships with the NBA, NCAA, NASCAR, FIFA and several other sports leagues, and provides data to over 150 different betting firms. There are only four companies in this business; Genius's primary competition is Sportradar, a private firm based in Germany that is rumored to be looking for its own SPAC.
The Genius Sports Group investor presentation contains more details about how the company operates.
Currently, only one analyst covers the company, so it is relatively unknown. Craig- Hallum Capital Group has a buy on the stock and a target price of $25, but that could change quickly if the company performs as hoped.
Recently, Genius reaffirmed its full-year 2020 projections, in which it expected to generate revenue of approximately $145 million and adjusted EBITDA of about $14 million. “Amidst a global pandemic, we have made great progress in 2020 and are on track for sustained strong performance in 2021,” said Mark Locke, Genius Sports Group co-founder and CEO. “Looking ahead, our anticipated merger with dMY II and NYSE listing will strengthen our position as a true partner to sports leagues, sportsbooks and media groups worldwide.”
No firm date has been set yet to complete the merger between Genius and DMYD, but there should be some increased trading action as the necessary filings are made with the SEC.
Technically, DMYD has been in a loose trading range in the $18 to $22 area. I am actively trading the stock, looking to buy at the bottom of the range and will also be looking for a break-out to new highs once the merger is finished and the new entity starts to trade under the symbol GENI.
James "RevShark" DePorre is a regular contributor to Real Money, TheStreet’s premium site. Click here to learn more and get great columns, commentary and trade ideas from Jim Cramer, Helene Meisler, Stephen Guilfoyle and others.
At the time of publication, James held long positions in ELYS, GMBL and DMYD.