DraftKings stock rose Friday after Barclays upgraded its target price on the stock from Equalweight to Overweight, citing the increased potential for growth in the US online gaming market.
DraftKings stock was up 4% to $42.53 a share shortly after Barclays upgraded its target price to $50.00, up from $41.00. The updated price is 22.4% higher than where DraftKings stock closed Thursday.
The company lifted its financial outlook for 2024 earlier this month, despite posting revenue that fell short of forecasts.
Less concerned with DraftKings competition
Despite online sports betting sites competing with established players like Flutter Entertainment’s FanDuel, and the emergence of ESPN Bet from Penn Entertainment, Analyst Brandt Montour is increasingly less concerned with DraftKings spot in the standings because of resilience it has shown in defending market share.
“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,” Montour said in the report.
The report cites a belief that DraftKings can continue to hold around 30% of the sports betting market, which so far only FanDuel has been able to maintain.
Montour also raised his total addressable market (TAM) for online sports betting and iGaming sector to between 1% and 3% over the “next several years,” citing better-than-expected growth in more mature markets and “a growing appreciation” for the staying power of sports betting in the everyday life of sports fans.
‘Underappreciated’ iGaming adds potential to DraftKings stock
Barclays believes DraftKings will benefit from “incremental momentum” generated by strategic partnerships and acquisitions, like the recent $750 million acquisition of digital lottery app Jackpocket.
The acquisition is expected to close in the second half of the year and will give DraftKings a presence in some key new states, most notably Texas. DraftKings CEO Jason Robins also touted its potential to squeeze higher lifetime value out of customers through cross-sell opportunities.
Barclays highlighted the potential for DraftKings to grow its leading position in the iGaming sector, which was described as “underappreciated.”
Everybody loves parlays?
The report underscored the potential profitability boost stemming from an uptick in parlays, which sportsbooks have spent much of the legal era pushing, particularly same-game parlays.
“A good chunk of DKNG’s beat and raises over the past few quarters have been driven by better structural hold, driven by a greater mix of higher hold products like multi-leg parlays. Theoretical hold for DKNG reached 10.4% in 4Q, materially below market leader Fanduel’s ~13.5%.”
The report cites that DraftKings is closing in on the gap between parlay mix leader FanDuel in Illinois, the only state that reports such data.
Closing that gap, though unlikely in the near term, would equate to roughly $950 million in added revenue, 20% higher than DraftKings has advised for fiscal year 2024, according to the report. Most of that would come as hold increases in concert with more parlays.
Barclays moved its hold estimate from 10.4% to 10.6% in 2024, and to 11% in 2025.
