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There’s no denying that people enjoy gambling. Whether it’s going to Las Vegas, throwing money down on the United States’ NCAA basketball tournament, or anything else, people really like to gamble. But something people also love is their Internet connection. Amaya Inc. (TSX:AYA) is the largest online poker destination thanks to its acquisition of PokerStars and Full Tilt Poker in June 2014 for US$4.9 billion.
The reality is that people have always enjoyed playing poker and other gambling games online because they can do it from the comfort of their own house. Rather than having to spend $100+ a night on a hotel, plus meals, users can do it from home.
Unfortunately, it’s a heavily regulated industry and mostly illegal in the United States.
On top of that, Amaya is starting to expand into the sports-betting market. Just to offer some perspective, in 2011 it was estimated that $12 billion was gambled on March Madness, which is when college basketball teams compete to win. It’s believed that close to $9 billion of that was gambled in illegitimate ways (bookies).
Clearly, there is significant market potential for Amaya to gain access to this money once these countries start to legalize online gambling. It’s already experimenting with online gambling in Spain. When it launched, it alerted its PokerStars members about it, and almost immediately Amaya gained a double-digit market share for sports betting.
The company is poised to make a considerable amount of money if regulations lift from online gambling. And there are trends that are suggesting it could happen in the next few years. With governments aching for revenue, they are looking at gambling as a potential cash cow.
Should you buy?
With all of this great news, clearly Amaya is a buy, right? Unfortunately, it’s not an instant buy. The company is currently under investigation by the Autorité des marchés financiers (AMF) because the agency is suggesting that the PokerStars and Full Tilt Poker acquisitions were not up to snuff.
This sort of investigation could have serious implications on the company. Amaya says it did nothing wrong, but each month that this investigation goes on, the harder it is to say that nothing is wrong. AMF may have found something, which is why it keeps going deeper.
At the end of the day, no one really knows what’s going on with this investigation, and buying a company that is under investigation can be a risky move. However, if you believe that online gambling is the future and that governments will start allowing it to happen, this is the right company for you. But if you want to wait until the investigation is resolved, that’s not a bad idea either.
Amaya's growth depends on the United States
Amaya is going to grow like crazy if the United States approves online gambling. That would give you exposure to the U.S. market, while still owning a Canadian company. But if you really want to expand your portfolio into more diverse companies, you should look at acquiring U.S. stocks.
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Fool contributor Jacob Donnelly has no position in any stocks mentioned.