Company Reports

DraftKings has extended its leading daily fantasy sports position, first established in 2012, into one of the top positions in the North American sports betting and iGaming market, with the company, along with FanDuel and no-moat MGM, holding a combined 75%-80% revenue share. While sports betting and iGaming are currently legal in around 40 and seven states, respectively, we expect another handful to be added to each market the next few years, as governments look to capitalize on tax revenue generated from the growing activity, which is benefiting from an improved product (parlay and in-play wagering) and technology (customized content) offering across the industry. As a result, we estimate the North American sports betting and iGaming market to reach more than $40 billion in revenue in the early part of the next decade from over $16 billion in 2023.

We don’t plan a meaningful change to our $47 fair value estimate for no-moat DraftKings after the company reported terrific first-quarter results and increased its 2024 sales and adjusted EBITDA guidance roughly in line with our estimates.

Pennsylvania and Michigan released sports wagering and revenue data through February, including individual operator performance. The data supports our view that no-moat Penn is grabbing share at the hands of no-moat peers MGM and Caesars, while no-moat DraftKings adds to its leading position due to first mover and technology advantages. In fact, since launching ESPNBet in November, Penn has averaged a 4- and 7-percentage-point sports revenue share improvement over the prior year in Pennsylvania and Michigan, respectively, reaching a high-single-digit share of both markets and aligning with our forecast. Meanwhile, MGM’s share over the same time is lower by 3 and 5 percentage points; Caesars’ is flat and down 3 percentage points; and smaller competitors are collectively lower by 3 and 3 percentage points. Conversely, DraftKings’ share is up 7 and 11 percentage points.

DraftKings has extended its leading daily fantasy sports position, first established in 2012, into one of the top positions in the North American sports betting and iGaming market, with the company, along with FanDuel and no-moat MGM, holding a combined 75%-80% revenue share. While sports betting and iGaming are currently legal in around 40 and seven states, respectively, we expect another handful to be added to each market the next few years, as governments look to capitalize on tax revenue generated from the growing activity, which is benefiting from an improved product (parlay and in-play wagering) and technology (customized content) offering across the industry. As a result, we estimate the North American sports betting and iGaming market to reach $40 billion-$50 billion in revenue in the early part of the next decade from over $16 billion in 2023.

We have increased our DraftKings fair value estimate to $44 from $35 on higher revenue share over our 10-year forecast, as well as incremental leveraging of marketing, technology, and general and administrative costs.

DraftKings has extended its leading daily fantasy sports position, first established in 2012, into one of the top positions in the North American sports betting and iGaming market, with the company, along with FanDuel and no-moat MGM, holding a combined 75%-80% revenue share. While sports betting and iGaming are currently legal in around 40 and seven states, respectively, we expect another handful to be added to each market the next few years, as governments look to capitalize on tax revenue generated from the growing activity, which is benefiting from an improved product (parlay and in-play wagering) and technology (customized content) offering across the industry. As a result, we estimate the North American sports betting and iGaming market to reach $40 billion-$50 billion in revenue in the early part of the next decade from over $16 billion in 2023.

BetMGM, which is equally owned by no-moat MGM and Entain, announced its sport betting and iGaming revenue grew 36% in 2023 to $1.96 billion, near our $2 billion forecast. We calculate BetMGM’s revenue share of the $16.6 billion U.S. sports betting and iGaming industry last year (by our estimate) was stable at around 12%, good for third in the market behind FanDuel’s roughly 30% and no-moat DraftKings’ low 20%. But in our view, 2024 presents a more intense competitive landscape, driven by the launch of ESPNBet last November, which is has partnered with no-moat Penn. Early state data from Pennsylvania and Michigan show that ESPNBet has had early success in gaining a few percentage points of revenue share from BetMGM. As a result, we continue to forecast BetMGM’s revenue share drops toward 11% this year before stabilizing around those levels thereafter. Still, we remain optimistic that BetMGM’s omnichannel presence can differentiate it from others, allowing it to be a key beneficiary of the U.S. sports betting and iGaming market, which we see ramping to more than $40 billion in sales by the end of this decade. And we are encouraged with BetMGM’s EBITDA having inflected into positive territory during each of the final three quarters of 2023 and believe that margins can eclipse 20% in the back half of this decade even amid competition.

DraftKings has extended its leading daily fantasy sports position, first established in 2012, into one of the top positions in the North American sports betting and iGaming market, with the company, along with FanDuel and no-moat MGM, holding a combined 70%-80% revenue share. While sports betting and iGaming are currently legal in nearly 40 and seven states, respectively, we expect another handful to be added to each market the next few years, as governments look to capitalize on tax revenue generated from the growing activity, which is benefiting from an improved product (parlay and in-play wagering) and technology (customized content) offering across the industry. As a result, we estimate the North American sports betting and iGaming market to reach $40 billion-$50 billion in revenue in the early part of the next decade from over $13 billion in 2022.

We think the key takeaway from no-moat DraftKings’ investor day surrounded its aim for strong 2028 adjusted EBITDA margins of 30%, representing a large jump from the negative 3% we forecast for 2023. Investors should feel confident in meaningful long-term margin expansion, given already ramping profitability in older state vintages, which is aided by DraftKings’ in-house technology of innovative in-play and parlay action, leading to a hearty 33% combined online sports betting, or OSB, and iGaming, or IG, gross gaming revenue share. But we expect competition to elevate, led by no-moat Penn’s launch of ESPN Bet on Nov. 14. Overall, we plan to lift our 2028 adjusted EBITDA margin to around 28% from 23%, leading to a $2-$3 per share increase to our $32 fair value estimate.

We plan to lift our $26.50 fair value estimate for no-moat DraftKings to $32, following strong third-quarter results and updated guidance. The company’s technology and product offering are resonating strongly with customers. In fact, revenue grew 57% driven by robust customer retention and acquisition (monthly unique player growth of 40%, with revenue per user up 14%) and mix toward higher hold parlay bets (hold in the quarter was 9.0% versus 7.7% in the full-year 2022). Overall, gross gaming revenue share of sports and iGaming where the company is competing was 33% versus 30% last quarter and 25% last year.

DraftKings has extended its leading daily fantasy sports position, first established in 2012, into one of the top positions in the North American sports betting and iGaming market, with the company, along with FanDuel and no-moat MGM, holding a combined 70%-80% revenue share. While sports betting and iGaming are currently legal in nearly 40 and seven states, respectively, we expect another handful to be added to each market the next few years, as governments look to capitalize on tax revenue generated from the growing activity, which is benefiting from an improved product (parlay and in-play wagering) and technology (customized content) offering across the industry. As a result, we estimate the North American sports betting and iGaming market to reach $40 billion-$50 billion in revenue in the early part of the next decade from over $13 billion in 2022.

We have initiated coverage on DraftKings with a $26.50 fair value estimate (though shares trade 10% above our intrinsic value) and a no-moat rating. DraftKings has taken its prowess in fantasy sports, which it established in 2012, and leveraged it into one of the leading revenue shares in the U.S. sports and iGaming market, with it, FanDuel, and no-moat MGM combined holding 70%-80% of the market.

DraftKings has extended its leading daily fantasy sports position, first established in 2012, into one of the top positions in the North American sports betting and iGaming market, with the company, along with FanDuel and no-moat MGM, holding a combined 70%-80% revenue share. While sports betting and iGaming are currently legal in nearly 40 and seven states, respectively, we expect another handful to be added to each market the next few years, as governments look to capitalize on tax revenue generated from the growing activity, which is benefiting from an improved product (parlay and in-play wagering) and technology (customized content) offering across the industry. As a result, we estimate the North American sports betting and iGaming market to reach $40 billion-$50 billion in revenue in the early part of the next decade from over $13 billion in 2022.