Online sports betting and fantasy sports operator DraftKings recently reported it had priced its stock offering of 32 million shares at $52 a share. Between the company selling 16 million shares and selling shareholders selling off another 16 million, the total stock offering totals $1.664 billion.
However, DraftKings won’t receive any of the proceeds from the shares sold by shareholders. Underwriters Goldman Sachs and Credit Suisse have a 30-day option to buy up to 4.8 million additional shares.
In premarket trade, shares fell 3.7% but year-to-date have gained 431%, while the S&P 500 has gained 4%.
More DraftKings stock will unlock on October 20. However, the company did not state the exact amount that will unlock on that date, but one institutional investor thinks the total amount could be around 95 million shares.
The selling stakeholders in this current round include the founder of SBTech, Shalom Meckenzie. Meckenzie, who sits on the DraftKings board, is selling around eight million shares.
Credit Suisse analyst Benjamin Chaiken gave DraftKings stock an “outperform” rating as well as a $76 target price. If Chaiken’s analysis is correct, shareholders will get returns of at least 50% based on the company’s current stock price of around $50.
According to Chaiken, the pace of sports betting legalization across the U.S. as a means to raise tax revenue is a key factor. He thinks DraftKings’ recent strategic marketing partnerships with ESPN, the NFL, the Chicago Cubs, and the New York Giants will also increase the sports betting operator’s share of the rapidly expanding US sports betting market.
To speed its expansion across the US, DraftKings has raised capital through stock sales. Now the sports betting giant has a cash-rich balance sheet, and the money it needs to aggressively invest in customer acquisition. It’s a smart move, considering the enormous opportunity US sports betting represents. It’s an opportunity that could pay off big for investors if the online sportsbook manages to position itself as the online betting leader in the years to come.
Could DraftKings Stock Hit $100?
Credit Suisse analyst Benjamin Chaiken further speculates that if California legalizes sports betting, DraftKings stock could jump to $100 per share.
“Currently, the company has access to just 18% of the US population with mobile betting as well as a line of sight opportunity to a few states”, said Chaiken. “But California represents 12% of the US population, and along with Florida and Texas, that could provide a strong upside for DraftKings.”
Finally, Chaiken said that by adding California, Credit Suisse could set a $100 “blue sky” price target for DraftKings stock.
“While there’s a concern of overvaluation by a few in the investment community, we don’t think that fully captures the rapidly growing pipeline available to DraftKings or the earlier stage in its lifecycle relative to peers,” concluded Chaiken.
Regulatory Tailwinds are Favorable
Brad Erickson, a five-star Needham analyst, initiated coverage of DraftKings with a buy rating and $70 price target.
“We see DraftKings as one of the leading beneficiaries as online sports betting takes off in the US. It’s an opportunity we size between $42 and $58 billion annually longer-term,” Erickson said.
Looking ahead, Erickson expects the regulatory tailwind to keep going, giving online sportsbooks access to an expanding market.
“Thanks to the company’s data-centric approach to acquiring customers and its leading marketing approach, we think the company could regularly exceed top-line forecasts. However, near-term, we suspect EBITDA expectations might be too aggressive,” Erickson wrote.
While some bears think DraftKings is over-priced, Erickson thinks that this isn’t the time to become stuck on valuations. He thinks the key to success is to look at the big picture. With this in mind, Erickson thinks the most important points to keep in mind are the online sportsbook’s runaway growth, robust market share in states with legal sports betting, and its leading platform technology.