Everyone interested in US sports betting knew DraftKings stock would get some attention as the only US -listed, pure-play sports betting operator.
Since going public in April, though, the stock exploded into more than that. Chad Beynon of Macquarie suggested the DraftKings stock is now considered part of the software and consumer internet high-growth sectors.
Two recent initiations from gaming analysts, however, go divergent ways on the stock.
Benjamin Chaiken of Credit Suisse initiated with a $76 target and outperform rating, basing his target off a staggering 45 times his 2026 EBITDA forecast. Carlo Santarelli of Deutsche Bank, meanwhile, pumped the brakes a bit with his $48 target and hold rating.
The market seemed happy with the new coverage as DraftKings stock rose Monday following the initiations. That’s the first time it closed positively since DraftKings announced its latest stock offering last week.
Hold on DraftKings stock until picture is clearer?
Santarelli took a cautious approach with his target and rating. He called an investment in DraftKings Sportsbook at this point more of an investment in the concept of US sports betting and online gaming.
Instead of rating on valuation, his hold rating is based on his assumption of positive and negative scenarios throughout the medium-term that will balance the stock.
“Our hold rating is not a call on valuation, because, quite simply, it doesn’t matter if it doesn’t make sense to us, as this is a pure-play online gaming company with few truly comparable peers in what we expect will be a fast-growing top-line environment,” Santarelli said.
There are positives to investing, such as DraftKings’ likely status as a market-share leader, Santarelli said. He also noted a hard-to-disprove bull case that appeals to a wide range of investors, the powerful brand, and plenty of cash.
But current expectations of the stock reflect a dream scenario of seamless regulatory rollout throughout the US, healthy per capita spending, and long-term profitability, Santarelli said. Those long-term investments also lead to lower investor patience during market corrections, he added.
Or could DraftKings surge again?
While some are becoing concerned about DraftKings’ valuation, Chaiken disagrees. The current valuation doesn’t fully capture the company’s accelerating growth pipeline or its earlier lifecycle relative to peers, he said.
Chaiken also expects a big legalization push for sports betting following the coronavirus pandemic. He compares the situation to the end of the recession in 2009, which led to the number of states with casino gaming to grow 75% between 2008 and 2018.
The fact that legalization comes state-by-state is a plus for DraftKings Sportsbook as well, he said. Most states require online sportsbooks to have land-based partners, which can limit competition. That will benefit market share and margins, Chaiken said.
Own technology is a plus
Chaiken pointed to DraftKings’ acquisition of SBTech and move away from Kambi as a significant key for $DKNG’s success.
“Now that this technology has been taken in-house, we think that DKNG/SBTech can create a one-of-a kind in-game betting experience, which we think can grow both betting volumes as well as win rates,” Chaiken said.
In-game betting will improve average daily revenue per user and draw interest from casual players, he said.
The SBTech acquisition also saves cash in the long run. Assuming a $20 billion sports betting market, an outside platform would get about 10% of DraftKings’ market share, which Chaiken estimates at 25%. That suggests $500 million in annual platform fees alone.
Differ on expected total addressable market
Chaiken is much more bullish on what he thinks a total addressable market, or TAM, for sports betting looks like in the future. Mobile sports betting handle could hit $14 billion in 2030, but he thinks that should be closer to $20 billion based on improved in-game betting.
Santarelli, meanwhile, expects $10.4 billion in sports betting handle by 2027.
Expectations that the market could be north of $20 billion are overextended at this point, he said. Santarelli expects a slower and “bumpier” legislative process and doesn’t include Texas and Florida in his forecast that anticipated 165 million adults with access to legal sports betting by 2023.