DraftKings (NASDAQ:DKNG) stock is trading modestly higher Monday with the help of a sell-side upgrade.
Cowen analyst Stephen Glagola boosted his rating on the daily fantasy sports (DFS) provider to “outperform” from “market perform,” while lifting his price target on the name to $70. That implies upside of 23.5 percent from the April 30 close. In his new enthusiasm for the stock, Glagola cites a familiar catalyst.
Current legalization trends suggest to us that the 2H:21-FY22 period remains robust, and could result in DKNG being live in states representing up to 51.2% of the adult population by 2022 end,” he said in a note to clients.
Glagola is the second analyst in the past two trading days to come to the rescue of DraftKings stock. The name is mired in what’s now a lengthy slump. The shares lost 7.61 percent in April and reside 23.21 percent below the 52-week high notched in March.
In the fiercely competitive online sports betting industry, where operators such as DraftKings spend heavily to acquire customers, analysts and investors are scrutinizing how well those expenditures pay off in terms of market share.
Broadly speaking, DraftKings is adept at establishing share. Although it loses money and is unlikely to be profitable prior to 2022 or 2023, it is the second-largest US online sportsbook operator, behind only FanDuel.
“In Q1:21, we have seen state-by-state market concentration solidify around the top 4 operators, where collective OSB handle share exceeded 90% in West Virginia (99.7 percent), Indiana (92.5 percent), Iowa (92.9 percent), Illinois (98.3 percent), Michigan (90.6 percent), and Virginia (99 percent),” said Cowen’s Glagola, pointing out this trend is a positive for DraftKings.
Still, there’s concern that DraftKings is potentially vulnerable to ceding the number two spot to BetMGM. The 50/50 joint venture between MGM Resorts International (NYSE:MGM) and Entain Plc (OTC:GMVHY) is fast adding market share in marquee states. It is aiming for a 20 percent to 25 percent overall share of the North American iGaming and sports betting segments.
Analysts and investors primarily view DraftKings through the lens of online sports wagering. While that take is accurate, the operator has other traits that could make it appealing to investors over the long-term.
DraftKings is seen as a potential force in the world of in-game betting. The concept hasn’t taken off yet in the US, but one analysts expect will morph into a major growth opportunity for operators in the years ahead.
Additionally, the Boston-based company has its technology operation — SBTech — in house, defraying costs associated with farming that business out to third-party vendors. DraftKings is also using acquisitions to move further into the media realm, moves that diversify its product portfolio and revenue stream while possibly lowering customer acquisition costs.