DKNG with Nobias technology: Draftkings shares are down 29%, Will Football Season Push These Shares Higher?
Now that sports betting has been legalized in many states, this industry is viewed as an intriguing area of the larger media/entertainment space with gamblers flocking towards new digital apps. Seeking Alpha news editor , Clark Shultz, a Nobias 3-star rated analyst, highlighted the potential size of the sports gamling market in the U.S. in a recent report. Shultz said, “U.S. sports betting revenue is up 435% year-over-year to $2.12B through July with more states open for land and mobile action, according to the latest update from Eilers & Krejcik Gaming.”
Draftkings (DKNG) is one of the established leaders in the domestic sports gamgling craze and during its recent Q2 earnings report, the company pointed out that it is “live with online sports betting in 12 states that collectively represent 25% of the U.S. population.” The company continued to highlight expansion opportunities, saying, “In 2021, 25 state legislatures have introduced legislation to legalize mobile sports betting, 5 state legislatures have introduced legislation to expand their existing sports wagering frameworks and 2 state legislatures have introduced legislation to legalize sports betting limited to retail locations. In addition, 4 states have introduced iGaming legislation and 3 states have introduced online poker legislation.”
Schultz highlighted the tremendous potential of the domestic addressable market touching upon the data released in the Eilers & Krejcik Gaming report saying, “The firm forecasts U.S. sports betting revenue will increase to $5.8B in 2023 and could reach $19.0B if legalized in all 50 states. The projection for online casino and poker revenue is $3.7B next year and $20.8B if all 50 states move to legalization.”
This week, Draftkings made headlines when rumors of a major acquisition in the sports gaming space arose. On Tuesday, September 21st, CNBC’s David Faber, who is well known for breaking major merger and acquisition stories, potentially most notably, Disney’s recent acquisition of Twenty-First Century Fox’s assets in the media/entertainment space, announced that his sources were telling him that Draftkings “is making a $20 billion offer to acquire U.K. online sports betting company Entain.”
The CNBC report stated, “The offer is largely in DraftKings stock, along with cash, according to the sources.” Furthermore, CNBC reported that “In a filing with the London Stock Exchange, Entain’s board confirmed that it received a proposal from DraftKings, which would include a combination of stock and cash. The filing did not contain any information on the price of the offer.”
This $20 billion rumor comes just months after a failed take-over attempt of Entain by MGM Reports in early 2021. MGM offered approximately $11 billion; however, Entain management said that the bid undervalued the company. It’s unclear as to whether or not Draftkings offer will be high enough; however, Entain shares are up roughly 25% this week in anticipation of a buyout becoming a reality.
There appears to be a rapid race for scale in the gambling space now that it has become legalized throughout the U.S. and the Entain move would give Draftkings a foothold in gambling markets across the Atlantic as well. In a recent article, Nobias 4-star rated analyst, Vandita Jadeja discussed the company’s expansive growth saying, “The company is making well-timed moves to build new offerings and achieve growth. It has successfully partnered with some of the top sports companies to offer a unique experience to the users. DKNG stock is up 22% over the month and is trading close to $60 today.” She continued saying, “The stock recorded an all-time high of $74 and the current dip is a great buying opportunity.”
In the aftermath of the Entain bid, DKNG stock fell precipitously, down roughly 10% this week. Jadeja’s article was published prior to the rumored $20 billion offer; however, her bull thesis was based upon the strong tailwind that football season should provide to DKNG in the coming quarters and that catalyst remains firmly in place. She wrote, “There is nothing as big as football in the USA and I believe the National Football League (NFL) season will give it a strong boost. The company already has more than 1.1 million monthly unique players and it will be able to attract users during the football fiesta. The company stated that it does not expect any slowdown in the coming months which shows that it is ready to make the most of this season.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Jadeja said that famed growth investor, Cathie Wood of ARK Invest recently bought “$60 million worth of DKNG stock”, which has helped to give the stock momentum. DKNG also carries a high short interest, which currently sits at approximately 9.5%. This implies that the stock could get caught up in one of the “meme” stock rallies that we’ve seen develop throughout the last year or two which have powered other speculatively valued growth names higher.
During its second quarter report, DKNG raised its full-year guidance saying: “DraftKings is raising its fiscal year 2021 revenue guidance from a range of $1.05 billion to $1.15 billion to a range of $1.21 billion to $1.29 billion, which equates to year-over-year growth of 88% to 100% and a 14% increase compared to the midpoint of our previous guidance.” The company continued, noting: “The increase reflects strong performance in the second quarter of 2021 and continued user retention, engagement and acquisition due to the effectiveness of our marketing spend.”
These triple digit growth prospects have certainly caught the eye of Jadeja, who concluded her piece saying, “I am very bullish on DKNG stock and believe it is for the long term. The company has made some strong partnerships in the industry and is one of the top players today. As the lockdown ends and we resume normalcy, the company will gain from the sports season and it will take DKNG stock higher.” And she’s not the only highly rated author that the Nobias algorithm tracks who is bullish on DKNG shares. Right now, the overall bias within the credible author community that Nobias tracks is 85% bullish. The average price target amongst the credible analysts that our algorithm follows is $73.88. This represents upside potential of approximately 40.4%, relative to the stock’s current share price of $52.63.
Disclosure: Nicholas Ward has no position in DKNG. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.