Recently, Evercore ISI analysts began coverage on DraftKings stock with a $60 price target and an Outperform rating. The analysts see the online gambling industry in the US growing significantly in the near future.
Evercore’s $60 target is based in part on 2022 revenue projections that are currently at 25% above consensus. The analysts also think that DraftKings could hit close to $900 million in adjusted earnings before interest, taxes, depreciation, and amortization by 2025.
What is the Case for DraftKings Stock?
If and when more states legalize online casino gambling and sports betting, interest will only build for Draft Kings and other online gambling and sports betting platforms. The Evercore analysts emphasize that this as a big opportunity for investors. They also understand that customer acquisition costs will lead to further growth, in addition to legislative acceleration.
With the NFL season already kicking off, the analysts factored in the upcoming sports season into their projections. Evercore also analyzed current and proposed gambling legislation, which indicates that as many as 35% of all Americans could have access to online sports betting by the 2021 NFL season.
The analysis also included the fact that the COVID-19 pandemic helped to accelerate states legalizing online sports betting. Online gambling of all types has undoubtedly benefited from the shut down of casinos and land-based sportsbooks, such as those found in Atlantic City.
The analysts see the potential in Draft Kings and believe it’s innovative technology will support the company’s ability to dominate market share. FanDuel, the company’s main rival, currently has around 30% of the total addressable market. However, as the Evercore analysts see it, DraftKings market leadership combined with their digital-first approach, is an obvious advantage compared to traditional gaming operators.
Revenue is Reason to Be Bullish
The amount of revenue DraftKings generates is also a big reason to be bullish on the sports betting giant.
New Jersey is an excellent case study for any other state that wants to capitalize on legal online sports gambling. The analysts note that currently, New Jersey averages about $500 per person in gambling revenue. Moreover, this number is growing by 50% year-over-year, noting that this represents close to $20 billion of industry revenue, considering the operators’ current 7% take rates.
However, the fact is, no one can be sure of how much people in other states might be willing to spend on sports betting. But despite the uncertainty, the opportunities presented by DraftKings and other online gaming companies are evident.
While analysts at Evercore remain optimistic about DraftKings stock, some risks that they noted include the possibility that states could reverse gambling legislation, and that the company could lose market share to rivals, such as FanDuel and William Hill.
If legislative support for sports betting were to waver or if rival FanDuel significantly increases their market share. In that case, DraftKings would experience reduced margins. Perhaps even a bigger risk is the prospect that states could increase taxes on the sports betting industry.
High Profile Partners are Another Reason to Watch DraftKings
Shares of DraftKings shot up 11% to a record high recently, after the company announced an agreement making the sports betting giant the co-exclusive provider of fantasy sports content to ESPN.
According to the agreement, DraftKings can integrate its offerings on all of ESPN’s digital platforms. DraftKings will provide sports betting segments for EPSN studio shows, premiering with a daily fantasy sports segment.
DraftKings also recently expanded its partnership with MLB as the official and exclusive daily fantasy sports partner for the league.
The expanded partnership increases DraftKings’ product integration, content rights, prizing, and use of MLB branding and video embedded within DraftKings’ Daily Fantasy Sports games.
These are just two partnerships, which not only drive traffic to the site, but also lend credibility to the sports betting industry. While analysts are bullish on DraftKings, other online gambling companies are also worth watching.