Executive Summary / Key Takeaways

• Rush Street Interactive is demonstrating a clear path to profitable growth, driven by strong performance in both online casino (iCasino) and sports betting across North America and Latin America.
• The company's proprietary technology platform and customer-centric approach are key differentiators, enabling efficient player acquisition and retention, leading to expanding margins and robust cash flow generation.
• Recent financial results highlight significant momentum, with Q1 2025 revenue up 21% year-over-year to $262.4 million and Adjusted EBITDA nearly doubling to $33.2 million, building on a full year 2024 where EBITDA grew over 11-fold.
• Management has reiterated full year 2025 guidance, projecting revenue between $1.010 billion and $1.080 billion (13% YoY growth at midpoint) and Adjusted EBITDA between $115 million and $135 million (35% YoY growth at midpoint), signaling confidence in continued operational leverage.
• Key factors to watch include the resolution of the temporary VAT tax in Colombia (a potential upside catalyst), successful integration and scaling in new markets like Peru and potentially Alberta, and the ongoing competitive dynamics in the rapidly evolving online gaming landscape.

The Rush to Profitability: Building a Differentiated Gaming Engine

Rush Street Interactive, Inc. (NYSE:RSI) has quietly been building a compelling narrative of profitable growth in the competitive online gaming and sports betting arena. From its origins in social gaming in 2015 to accepting real-money bets in the U.S. in 2016, RSI has evolved into a significant player across North America and Latin America. The core of its investment thesis lies not just in market expansion, but in a deliberate strategy centered on a differentiated user experience, underpinned by proprietary technology and a relentless focus on operational efficiency. This approach is now translating into tangible financial results, moving the company firmly into a phase of accelerating profitability and cash generation.

At the heart of RSI's strategy is its commitment to a customer-centric approach, aiming to deliver "friendly, fun, and fair betting experiences." This isn't merely marketing jargon; it's deeply integrated into their product development and operations. The company emphasizes transparency, fairness, valuing player loyalty, and actively incorporating feedback. This focus is designed to foster a loyal customer base, which is crucial for long-term value creation in an industry often characterized by high customer acquisition costs and promotional intensity.

A critical enabler of this strategy is RSI's significant investment in its in-house technology stack. Unlike some competitors who rely heavily on third-party platforms, RSI owns approximately 95% of its core technology, including its player account management system (PAM), proprietary online poker platform, real-time promotional engine, and jackpot system. While the core sports betting platform is integrated through a partnership with Kambi (KAMBY), RSI differentiates by building its own features on top of this foundation. This proprietary technology provides several key advantages:

• Agility and Differentiation: Ownership allows RSI to be more nimble and responsive to market demands and player preferences. This includes developing unique features like the enhanced iRush Rewards loyalty program, proprietary casino games (such as multi-bet blackjack variants), and innovative sports betting promotions like PropPacks, which combine sports cards with prop bets for NBA games. These features are designed to create engaging experiences not readily available elsewhere, driving player engagement and retention.
• Operational Efficiency: The integrated technology contributes to a more efficient operational structure. Management notes that their cloud-based tech contributes to 20-25% lower operating costs per user compared to competitors like MGM (MGM). This cost advantage is a significant factor in their expanding margins.
• Faster Iteration and Market Entry: RSI's tech stack enables faster product development and deployment. They report being able to iterate on new features in 2-4 months, compared to 4-6 months for some rivals, and achieve 10-15% faster market entry for new games in regions like Latin America (3-6 months vs. 6-9 months for Flutter (FLUT)). This speed allows them to quickly adapt to local market nuances and competitive pressures.
• Optimized Bonusing and Cross-Sell: The proprietary promotional engine allows for sophisticated player segmentation and targeted bonusing strategies, which management highlighted as crucial in navigating challenges like the Colombia VAT tax by absorbing costs through higher bonusing for specific player segments. The platform is also designed to facilitate cross-sell between verticals, such as integrating mini-game lobbies within the sportsbook or driving players from poker to casino games, leveraging the higher value of players who engage across multiple product types.

While tech giants like DraftKings (DKNG) and Flutter leverage AI for personalization and faster processing, RSI's technological edge lies in its cost structure, speed of feature iteration, and ability to tailor the user experience through its owned platform components. This positions RSI as a formidable competitor, particularly in markets where cost efficiency and localized offerings are paramount.

Competitive Arena: Battling Giants with Efficiency and Focus

The online gaming industry is intensely competitive, featuring well-capitalized players with significant brand recognition and existing customer databases, often tied to large land-based casino operations. Key rivals include DraftKings (DKNG), Flutter Entertainment (FLUT, via FanDuel), and MGM Resorts (MGM, via BetMGM).

DraftKings and Flutter, through FanDuel, hold leading market share positions in the U.S., benefiting from massive scale, extensive marketing budgets, and advanced technology, including AI-driven personalization that can lead to higher user engagement rates. MGM and Caesars (CZR) leverage their vast physical footprints for cross-promotion and brand recognition, offering integrated online-offline experiences. Indirect competitors range from traditional casinos to emerging tech platforms and unregulated offshore sites, which pose challenges by operating outside regulated frameworks and tax structures.

Against these formidable opponents, RSI employs a strategy that emphasizes efficiency and differentiation rather than simply outspending rivals.

• Cost Leadership: RSI's lower operating costs, partly driven by its technology, allow it to compete effectively on pricing and promotions while maintaining healthier margins. This is particularly impactful in cost-sensitive markets and helps counter the high customer acquisition costs prevalent in the industry.
• Targeted Marketing: RSI focuses on data-driven marketing to acquire high-value players efficiently. Management noted a significant reduction in the cost to acquire players in North America in recent quarters, even while increasing first-time depositors. This suggests their targeted approach is yielding better ROI compared to the broader, often less efficient, marketing strategies of some larger competitors.
• Product Differentiation: As discussed, the proprietary technology enables unique features and a tailored user experience that aims to build loyalty and increase player value, providing a competitive moat beyond generic game libraries.
• Regional Adaptability: RSI has demonstrated strength in adapting its offerings and marketing to specific regional markets, particularly in Latin America, where its localized RushBet brand and established teams have driven significant growth and market share gains against competitors who may have a less tailored approach.

While RSI's smaller scale compared to market leaders like DraftKings and Flutter presents challenges in terms of brand awareness and sheer marketing firepower, its focus on efficiency, differentiated product, and regional expertise allows it to carve out a profitable niche and gain market share in key areas. The company's ability to achieve marketing leverage (marketing spend growing slower than revenue) and G&A leverage underscores the effectiveness of this focused approach.

Financial Momentum and Operational Strength

RSI's strategic execution is clearly reflected in its recent financial performance, marking a significant turning point towards sustained profitability and strong cash flow.

For the first quarter of 2025, RSI reported revenue of $262.4 million, a robust 21% increase compared to $217.4 million in the same period of 2024. This growth was broad-based, driven by continued expansion in existing markets and contributions from newer ones like Peru. Online casino and online sports betting revenues saw significant increases, while retail sports betting revenue saw a slight decrease.

Profitability metrics show impressive leverage:

• Gross Margin: Increased to 34.9% in Q1 2025, up 125 basis points from 33.7% in Q1 2024. This builds on a trend seen throughout 2024, where full-year gross margin reached 35.0%, an improvement of over 200 basis points year-over-year. This expansion is attributed to revenue diversification and higher growth in more profitable markets, particularly those with iCasino and certain Latin American regions where gross margins are higher.
• Operating Expenses: Costs of revenue increased in line with growth but decreased as a percentage of revenue (65% in Q1 2025 vs 66% in Q1 2024). Sales and marketing expense, while increasing in absolute dollars due to personnel and share-based compensation, decreased significantly as a percentage of revenue (16% in Q1 2025 vs 18% in Q1 2024). General and administrative expense also showed leverage, decreasing slightly in absolute terms and as a percentage of revenue (10% in Q1 2025 vs 12% in Q1 2024). Depreciation and amortization increased due to investments in internally developed software and intangibles.
• Adjusted EBITDA: The culmination of revenue growth and operational leverage resulted in Adjusted EBITDA of $33.2 million in Q1 2025, nearly double the $17.1 million reported in Q1 2024. This follows a transformative 2024, where full-year Adjusted EBITDA reached $92.5 million, an over 11-fold increase from the prior year. This consistent improvement over seven consecutive quarters highlights the scalability and increasing profitability of the business model.

Operational metrics underscore this momentum. North American Monthly Active Users (MAUs) grew 17% year-over-year in Q1 2025 to 203,000, building on a trend of accelerating growth in prior quarters. Average Revenue Per MAU (ARPMAU) in North America also increased by 3% year-over-year to $368, demonstrating the ability to grow the user base while maintaining or increasing player value. In Latin America, MAUs saw explosive growth, increasing 61% year-over-year in Q1 2025 to a record 354,000. While Latin American ARPMAU decreased to $36 in Q1 2025, this was primarily attributed to the impact of the Colombia VAT tax requiring higher bonusing, rather than a fundamental decline in player value or engagement.

Liquidity remains strong. As of March 31, 2025, RSI held $228.2 million in unrestricted cash and cash equivalents, with no outstanding debt. The company generated $28.7 million in net cash from operating activities in Q1 2025. This robust cash position, which increased by approximately $61 million in 2024, provides significant financial flexibility.

The company initiated a $50 million share repurchase program in Q3 2024 and has been executing on it, repurchasing approximately 500,000 shares for $5.2 million in Q1 2025 and an additional 234,000 shares for $2.5 million subsequent to quarter-end, leaving about $42 million remaining. This buyback signals management's confidence in the intrinsic value of the shares and provides a means of returning capital while retaining ample resources for strategic initiatives, including potential bolt-on M&A opportunities, particularly in Latin America.

Outlook and Growth Catalysts

RSI has reiterated its full year 2025 guidance, projecting revenue between $1.010 billion and $1.080 billion, representing 13% year-over-year growth at the midpoint of $1.045 billion. Adjusted EBITDA is anticipated to be between $115 million and $135 million, a significant 35% year-over-year increase at the midpoint of $125 million.

This guidance reflects several key assumptions and expected trends:

• Continued Growth in Existing Markets: Management expects ongoing growth and strong customer retention in its current operational footprint across North America and Latin America. Markets with both iCasino and sports betting are expected to continue performing well.
• Margin Expansion and Leverage: The outlook anticipates continued improvement in gross margins driven by favorable revenue mix shifts towards more profitable markets and ongoing cost efficiencies. Incremental leverage is also expected over marketing spend (growing slower than revenue) and G&A expenses.
• Colombia VAT Impact: The guidance explicitly assumes the temporary 19% VAT tax on player deposits in Colombia remains in effect through the end of 2025. This tax has necessitated higher bonusing, negatively impacting net revenue despite strong underlying GGR growth (up 55% in local currency in Q1 2025).
• Potential Upside from Colombia: Management highlighted that if the Colombia VAT tax were to be repealed or shortened before year-end (a possibility given the ongoing Constitutional Court review of the emergency decrees that instituted it), it could provide meaningful upside to the current guidance ranges.
• New Market Contributions: The guidance includes contributions from markets live as of May 1, 2025, including the recently launched Peru market. While Peru's initial launch is modest, it represents a strategic foothold in a market with significant population and GDP per capita.
• Sequential Trends: Management expects revenue to be lower in Q2 and Q3 2025 compared to Q1 2025, with Q4 2025 potentially being the strongest revenue quarter. This reflects factors like the full quarter impact of the Colombia VAT headwind and the timing of the Delaware launch lap.

Beyond the explicit guidance, potential future catalysts include:

• Alberta, Canada: Progress on Bill 48 suggests a potential launch of a regulated online gaming market in Alberta in 2026. RSI is well-positioned to enter this market, leveraging its success in Ontario and other North American jurisdictions.
• U.S. iGaming Expansion: The increasing fiscal pressures on U.S. states and the growing recognition of the revenue potential and consumer protection benefits of regulated online casino gaming (especially compared to unregulated sweepstakes and offshore sites) could accelerate legalization efforts in new states. RSI's expertise in iCasino positions it favorably for such opportunities.
• Further LATAM Expansion: RSI continues to evaluate other markets in Latin America, leveraging its established regional infrastructure and brand recognition. While being selective, successful entry into additional countries could provide further growth avenues.

Risks and Considerations

While the outlook is positive, investors should be mindful of several key risks:

• Regulatory and Tax Risk: The online gaming industry is highly regulated and subject to evolving laws and tax structures. The temporary VAT tax in Colombia highlights the potential for unexpected tax changes to impact profitability. Discussions around potential tax increases in other jurisdictions also pose a risk, although management believes significant increases could be counterproductive by driving players to the unregulated market.
• Competitive Intensity: Competition remains fierce, particularly in established U.S. markets. Larger competitors with greater resources could increase marketing spend or leverage their scale to pressure margins and market share.
• Execution Risk in New Markets: While RSI has a track record of successful launches, entering new markets requires significant investment and carries execution risk related to localization, player acquisition, and regulatory compliance.
• Sports Betting Volatility: While iCasino provides a more stable revenue stream, sports betting results can be volatile in the short term due to unpredictable sporting outcomes, impacting quarterly results.
• Reliance on Third Parties: Although RSI owns most of its tech stack, reliance on third-party providers for certain services (like the core sports betting platform from Kambi) and payment processing introduces potential points of failure or increased costs.
• Foreign Currency Fluctuations: A portion of revenue and expenses are denominated in foreign currencies (Colombian Peso, Mexican Peso, Canadian Dollar), exposing the company to foreign exchange rate risk.

Conclusion

Rush Street Interactive has successfully transitioned from a growth-at-all-costs phase to demonstrating a clear and accelerating path to profitability. This shift is driven by a well-defined strategy focused on delivering a differentiated, customer-centric experience powered by its proprietary technology, enabling efficient player acquisition and retention.

The recent financial results, marked by robust revenue growth, expanding margins, and significant Adjusted EBITDA improvement, validate this approach. The company's strong balance sheet and growing cash flow provide the flexibility to continue investing in its platform, pursue strategic expansion opportunities in attractive markets like Alberta and other parts of Latin America, and return capital to shareholders through its buyback program.

While competitive pressures and regulatory uncertainties, particularly regarding taxation in key markets like Colombia, remain factors to monitor, RSI's focus on operational efficiency, technological agility, and building a loyal, high-value player base positions it favorably. The reiterated 2025 guidance signals confidence in the continued execution of this profitable growth strategy. For investors seeking exposure to the online gaming sector with a focus on demonstrated profitability and operational leverage, RSI presents a compelling case, contingent on continued execution and favorable resolution of key regulatory dynamics.