Volatility is again creeping into Landcadia Holdings II (NASDAQ:LCA) as LCA stock is off 16.53% over the past week, but those can be the breaks when a security more than doubles in a month as this name just did.
Here’s what investors need to know right about Landcadia. It’s a special purpose acquisition company (SPAC) with a confirmed deal to merge with Golden Nugget Online Gaming (GNOG). Both entities are controlled by Houston Rockets own Tilman Fertitta, so odds are incredibly long something goes haywire with this deal. To that end, Landcadia investors vote Friday, Dec. 18 on the GNOG deal.
Assuming a favorable outcome from that shareholder vote, and that will almost certainly be the case, “GNOG” will come to life with its stock trading on the Nasdaq under that ticker. Chalk it up as another blank-check transaction done right, something investors shouldn’t take for granted because not all SPACs find partners to dance with.
Accounting for recent news flow, including New Jersey regulators approving the Landcadia-to-GNOG transition, it’s not unreasonable to say some of the recent weakness in LCA stock is attributable to profit-taking by traders who caught a nice move in a SPAC and simply don’t want to stick around to see what happens when GNOG hits the market.
LCA Stock Can Shine When It Becomes GNOG
There are multiple reasons why Landcadia is one of the more ballyhooed blank-check companies investors are hearing about this year. First, it’s a SPAC. Second, it operates in the hot, hype-filled iGaming and online sportsbook arenas. Put those traits together and it’s a recipe for a lot of hype, hope and conjecture.
It’s also a recipe for comparisons to rival companies, such as DraftKings (NASDAQ:DKNG). Big differences being GNOG, for now at least, lacks the brand recognition of DraftKings and doesn’t operate in as many states as DraftKings. More importantly, GNOG is consistently profitable, but it could three or four years before DraftKings stops losing money.
Speaking of state exposure, GNOG is a force in New Jersey’s online casinos and sports wagering markets. Last month, internet casinos in the Garden State generated $91.8 million in revenue, an 87% year-over-year increase. Sportsbooks there notched a handle of $931 million, a national record for a single month. Of that $91.8 million iGaming figure, $26 million was attributable to GNOG, 37.5% year-over-year jump.
Alone, a 37.5% revenue increase is impressive, but it’s more so when considering GNOG is a mature company in iGaming terms. It has been operating in New Jersey since 2013.
What makes that turnover surge important to investors is that it proves the Garden State market is growing and GNOG is proving up to the task as more competitors enter the market. In November, GNOG’s revenue was 10% ahead of its next closest rival.
More Than Just a New Jersey Pony
Read enough about the Lancadias and DraftKings of the world and you’ll find that analysts’ and investors’ enthusiasm for these equities largely revolves around the thesis of more states approving online gaming and sports wagering.
Focusing on the former because it’s the higher margin of the two, GNOG recently signed a deal with the prestigious Greenbrier Resort to provide online gaming in West Virginia. That’s a small state, but it’s a feather in GNOG’s cap.
More importantly, the company is moving into Michigan. That’s the eighth-largest state in the country and one that’s expediting its iGaming entry. Obviously, the key for GNOG is to gain approval in as many states as possible, but regarding near-term catalysts, the company’s potential success in the Wolverine State could spur the stock when the first batch of internet casino revenue numbers start rolling in early next year.
On the date of publication, Todd Shriber owned shares of DKNG.
Todd Shriber has been an InvestorPlace contributor since 2014.