DraftKings Stock Jumps Following Investor Day Comments, Sees $67B Market for iGaming, Sports Betting
DraftKings (NASDAQ:DKNG) stock is rallying Tuesday after the company said the North American iGaming and online sports wagering markets could eventually be worth $67 billion or more on a combined basis. This is far higher than even some of the most enthusiastic analyst forecasts.
Citing positive legalization trends, the sportsbook operator arrives at the $67 billion projection based on 2020 industry data and notes the domestic online sports wagering segment alone could be worth $22 billion or more, assuming 100 percent legalization. The estimates were issued at DraftKings’ investor day.
Market share for online sports betting and iGaming is at run rates of 30 percent and 19 percent, respectively as evidenced by Q4 2020,” said the company in a presentation to shareholders. “DraftKings is online in more states than any other operator.”
Due to the strong market share capture and improving outlook for online casinos and sports betting in the US, Boston-based DraftKings boosted its long-term earnings before interest, taxes, depreciation and amortization (EBITDA) forecast to $1.7 billion.
The projection isn’t far-flung because the company notes its customer retention rate is north of 80 percent and improving and that experience with daily fantasy sports (DFS) clients indicates sports wagering and internet casino retention levels could eventually come close to 100 percent.
For DraftKings Stock, Encouraging Online Casino Call
Founded in 2012 by Matthew Kalish, Paul Liberman, and Jason Robbins, DraftKings’ roots are in DFS. While the company still holds the dominant share in that market, analysts and investors view the operator as a play on online casinos and sports wagering.
In fact, DraftKings was able to leverage its established DFS presence to secure sports betting access in some states following the 2018 Supreme Court ruling on the Professional and Amateur Sports Protection Act (PAPSA).
Adding to the long-term bull case for DraftKings stock is the company’s estimate that, assuming 100 percent legalization, internet casinos in the US could be at least a $40 billion market. Currently, only a handful of states permit iGaming. The full legalization forecast is undoubtedly ambitious because getting famously anti-gambling states, namely Hawaii and Utah, to the table is likely to be difficult.
The company said it could generate $5 billion to $7.3 billion in revenue when North American sports betting and internet casinos reach maturity. Assuming the high end of that range is met, DraftKings stock currently trades at 3.42x that sales projection.
As many analysts previously surmised, a significant part of the DraftKings investment thesis revolves around increasing state-level legalization.
Currently, 15 states covering 27 percent of the US population permit online sports betting with DraftKings operational in 12 representing a quarter of the country’s population. As for internet casinos, six states accounting for 11 percent of US residents allow iGaming. DraftKings is in four covering 10 percent of the population.
The company added Canada, which recently approved single-game sports betting, represents a $5 billion to $8 billion combined online gaming/sports betting opportunity.