Why It Might Not Be Too Late to Buy DraftKings Stock
Photo Credit: Business Wire, DraftKings
Canaccord Genuity raised its price target for shares of DraftKings to $50 from $35 and reiterated its BUY rating on Wednesday. The overwhelming enthusiasm for DraftKings that has driven the stock to a premium valuation is warranted due to the upcoming return of sports and the potential for accelerated online sports betting legalization across the U.S., according to Canaccord Genuity analyst Michael Graham.
“We find that investors' willingness to consider upside scenarios has been bolstered by recent positive datapoints around platform engagement and the legalization progress, and we expect the return to sports this summer and fall to contribute to this enthusiasm.”
Pent-up demand: Recent sports television viewership data suggests there is a strong desire for the return of sports, and DraftKings has already proved it can capitalize on that. “The Match II,” which was a golf matchup including Tom Brady, Peyton Manning, Phil Mickelson, and Tiger Woods, became the most-watched golf telecast in cable TV history. It was also DraftKings’ biggest golf event ever, doubling the previous record.
The return: The picture is becoming clearer for the resumption of the major sports leagues in the U.S. The NBA is proposing a return on July 31 at Disney World, MLS will reportedly return on June 24 with a tournament-style competition, and MLB is reportedly proposing a shortened season that would begin in July.
Elephant in the room: A single positive case of COVID-19 in any one of these leagues could disrupt any plans for a season. Japanese baseball was halted earlier this morning after two players reportedly tested positive for the virus. The league is targeting a June 19 return, but that timeline could now be in jeopardy.
Potential for accelerated legalization: It is reasonable to assume states are more eager to find new sources of revenue in response to the economic toll created by COVID-19. Graham said in the note that “With tax revenue around the country suffering from the COVID-19 pandemic, we would not be surprised to see continued acceleration of legislative progress.” We are already seeing new legalization efforts put into motion.
California: The state is facing a budget deficit of more than $50 billion and Gov. Newsom has proposed $14 billion in cuts that would affect public education and healthcare. In response, Assemblyman Adam Gray proposed to legalize sports betting as a way to generate an extra $2 billion in revenue.
Louisiana: the Louisiana House voted to pass a sports betting referendum bill last week.
Mobile live streaming: DraftKings recently announced it will offer live-streamed sports games within its mobile app, in collaboration with Sportradar. At launch, DraftKings Sportsbook customers will be able to live stream sports including the Korea Baseball Organization and Bundesliga Soccer across all jurisdictions except Iowa. DraftKings said it will continue to explore potential expansion opportunities of the live-stream functionality.
Live betting: Mobile live streaming creates a more engaging experience that could encourage an increase in live betting. Graham names the introduction of live betting on the platform as a key catalyst and expects it to enhance ARPMUP (Average Revenue per Monthly Unique Player). Graham points out that live betting represents 75% of activity in the UK.
