JPMorgan, in its latest research note, argues that DraftKing stock price has yet to reflect its on-field performance. Prompting the firm to upgrade the online gambling operator from ‘Neutral’ to ‘Overweight.’ Moreover, they’ve raised their price target from $26 to $37, citing the significant gap between DraftKings and the S&P 500 Index (^SPX) since July.
A Promising Sector
As of the market open on Tuesday, DraftKing shares were up by over 4%. The question is, why this sudden surge in confidence? JPMorgan analyst Joseph Greff provides some compelling insights. He states, “We are taking advantage of sluggish share price performance since late July. Given what we continue to think is an appealing sector, with attractive same-store and new market growth prospects, against the backdrop of an industry-wide improving operating expense control environment.”
Market Share Soars
DraftKings has been on a winning streak. Its shares had surged more than 175% earlier this year, driven by Wall Street’s growing confidence in this mobile sports operator and its market share gains. According to JPMorgan’s analysis, DraftKings increased its gross gaming revenue market share from 28% in the first quarter to an impressive 32% in the second quarter.
Betting on Profits
DraftKings’ hold rates, which represent the percentage of money the company retains from the total amount bet by customers, have been steadily climbing. This is attributed to the company’s improving accuracy in odds making and the growing popularity of more profitable betting options. JPMorgan predicts that this trend will continue as the legalized sports gambling market expands, further boosting DraftKings’ profitability. Greff writes, “Customer acquisition costs can continue declining as national scale is achieved and sales/marketing costs fall precipitously.”
A Profitable Future
DraftKings has set its sights on profitability, with projections indicating that 2024 will mark its first full year in the black. However, concerns had arisen as two major new players entered the market just before the crucial football season kicked off.
On August 8th, Penn Entertainment (PENN) sealed a $2 billion deal with ESPN, signaling its intent to launch ESPN Bet in November. Fanatics, a giant in e-commerce, also entered the sports betting arena with its own sportsbook, led by former FanDuel CEO Matt King.
JPMorgan’s analysis provides a reassuring perspective. They believe that DraftKings is well-equipped to hold its ground against these formidable competitors. Greff asserts, “We think DKNG has a strong moat (product, scale, brand) that should allow it to compete against new entrants like PENN’s ESPNBet and Fanatics. Much like it competed against Caesars during an aggressive marketing push in 2022.”
In conclusion, DraftKings’ stock is on the move, and JPMorgan’s upgrade suggests that there may be more room to grow. With an appealing sector, increasing market share, and a promising path to profitability. DraftKings is poised for an exciting journey ahead in the world of online gambling and sports betting.
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