Everything seems to be falling nicely into place for DraftKings (NASDAQ:DKNG). Despite growing competition, specifically that of PENN/ESPN BET, the sports betting giant’s share of the OSB (online sports betting) market has held up well.
In January, on a trailing 3-month basis, the company’s OSB active GGR (gross gaming revenue) share came to 37%, an increase from the 31% seen in June and 28% in January last year. What’s more, its GGR growth has been far more impressive than that of other OSB operators; DraftKings’ trailing twelve-month OSB GGR climbed by 94% year-over-year vs. the 37% seen at FanDuel, 5% at BetMGM, 3% for CZR, and 46% for PENN.
The majority of PENN’s recent GGR growth occurred following the launch of ESPN BET, with increased promotional activities helping its cause. Although there was a slight loss of market share to ESPN BET towards the end of the year, that did not significantly impact DraftKings’ 2024 guide; in fact, guidance was actually adjusted upwards.
All the above has Barclays’ Brandt Montour in a bullish mood regarding DraftKings’ prospects. “Given PENN/ESPN BET has since reduced promos, and its guidance appears to be aiming to hold share in the 6-7% range in 2024, we’re less concerned about further impacts to DKNG’s market share,” the 5-star analyst said.
While that is no doubt good news for DraftKings, Montour thinks there’s another avenue of growth opening up in iGaming, and one that is being “underappreciated.”
In January, the company’s trailing three-month iGaming share reached 25%, growing from 23% in June and 23% in last January 2023. Moreover, its T12m iGaming GGR increased by 32% y/y vs. 3% for BetMGM, +25% for CZR, 14% for PENN, with only FanDuel notching better growth (+45%).
With better-than-expected growth in mature states and a promising digital gaming market outlook, DraftKings is set for a favorable future. As such, Montour upgraded DKNG from Equal Weight (i.e. neutral) to Overweight (i.e. Buy), and raised his price target from $41 to $50, suggesting the shares will post growth of 23% in the months ahead. (To watch Montour’s track record, click here)
Summing up his stance, Montour’s positive thesis is based on, “1) the ongoing dynamism of the U.S. digital gaming market points to significant growth ahead and likely higher TAM than we previously forecasted, 2) ~30% DKNG OSB market share which we believe is defensible, while its now #1 market share in iGaming is underappreciated (we’re particularly bullish on U.S. iGaming market potential), and 3) lift of theoretical hold from increasing parlay mix underpins a long runway of earnings upside vs. Consensus. Lastly, we’re less concerned than we were 3-6 months ago over increased competition, and see the ~10% pullback off the highs post its (strong) 4Q report as an attractive near-term entry point.”
Turning now to the rest of the Street, where based on an additional 23 Buys, 2 Holds and 1 Sell, the stock claims a Strong Buy consensus rating. The average price target stands at $48.81, implying shares will gain 20% over the one-year timeframe. (See DraftKings stock forecast)
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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.
