DraftKings (DKNG) is on Wall Street’s radar this week, with shares flying higher by nearly 28%. Why the excitement?
On Monday, DraftKings announced that it was entering into a multi-year agreement with ESPN to become the channel’s exclusive daily fantasy sports provider. DraftKings’ products and offerings, then, will flag up on ESPN’s digital sites, which should offer the company plenty of opportunity to grow its client base.
While the market has reacted with enthusiasm to the deal’s announcement, Oppenheimer analyst Jed Kelly claims it is “not a shocker.” As Disney – which owns ESPN – already has a 5.3% stake in DraftKings, the analyst believes the two “were a natural fit for partnership.”
“We see this as a slight near-term benefit given that DKNG has already been a heavy advertiser on ESPN properties,” Kelly went on to say.
That said, to shed a light on the opportunity presented to DraftKings by the online sports betting industry, the 5-star analyst points to a recent virtual event on the future of legalized sports-wagering with Bettor Capital founder David VanEgmond.
According to VanEgmond, the US sports market could provide the online sportsbook (OSB) space with a TAM (total addressable market) of $30 billion.
DraftKings has a significant advantage to rake in market share due to its daily fantasy sports marketing initiatives which have already “established national brand recognition with US sports fans.” To build similar platforms, legacy casinos will need to spend a lot of money just to keep up.
However, although VanEgmond believes “regional casinos will build share in certain states,” he sees DKNG’s stiffest competition elsewhere. Just like DKNG, Flutter’s FanDuel has established “brand recognition.”
Additionally, “millennial sports fans’ strong affinity toward Barstool Sports, likely creates a formidable competitor through its combination with PENN.”
Nevertheless, Kelly points to a recent investor survey which showed that over the next 5 to 6 years, 65% of investors expect the OSB TAM to surpass $10 billion, while 73% expect DKNG to take over 25% of market share.
Overall, Kelly sticks to an Outperform rating along with a $55 price target, suggesting a modest 4% upside from current levels. (To watch Kelly’s track record, click here)
Overall, the majority on the Street remain positive on DraftKings’ prospect. Among the 14 analysts who have posted recent reviews, 9 say Buy while 5 recommend to Hold. However, due to the recent surge, the $49.92 average price target implies shares will stay range bound for the foreseeable future. (See DraftKings stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
