It is interesting how a narrative takes shape for a budding industry like sports betting, and yet the results have zero impact on a company’s stock. This has been the case for DraftKings this year, with so many people believing that the company would thrive as sports betting continued to be legalized in the United States in 2021. Well, through the first 45 or so weeks of the year, shares of DraftKings are down 19.4%, and 24.76% over the past 52 weeks. So what seems to be the issue?
DraftKings has received several bearish forecasts from analysts following its recent quarterly earnings call. While the price targets do represent some upside in the future for DraftKings, it still is not being viewed as a true industry leader.
DraftKings is experiencing rising competition from a number of companies, both new and legacy names in the gambling industry. Currently, there is very little that sets DraftKings apart from its competition, but the company is certainly trying to change that. Here’s what investors need to know about the DraftKing Stock Forecast in 2021 and beyond.
Digital Marketplace and New Gaming Technology
Earlier this year, DraftKings introduced several new innovations to its site to try and separate itself from its competition. Firstly, DraftKings jumped into the NFT market with its DraftKings Marketplace. In the Marketplace, DraftKings sells exclusive NFTs and partnered with NFL superstars like Tom Brady and Rob Gronkowski for the inaugural series. In total, DraftKings saw over 120,000 transactions for its NFT offerings, totalling a GMV of over $20 million.
DraftKings also introduced a couple of new ways to gamble on both its mobile and web-based platforms. A twist on an old favorite sees DraftKings offering the DK Rocket game. This is a play on the rocket game where bettors can wager on when the rocketship will crash in the game simulation. Secondly, DraftKings bolstered its live and in-game betting options, with NFL Flash Bet. This allows bettors to wager on micro moments inside of games, which could be something as simple as the outcome of the next drive in an NFL game. DraftKings is planning to roll the live-moment betting to other sports in the near future, including NCAA Football, NBA, and MLB.
The third and fourth quarters of the year are also the sweet spot for DraftKings. Sports bettors have the option of betting on the NFL, NCAA Football and Basketball, the NBA, and the NHL at the same time. Not many people think of sports betting as a cyclical industry, but there are clearly defined busy periods for sportsbooks, and the winter is one of them.
Wallstreet valuations suggest upside despite recent downgrades
DraftKing stock (NASDAQ:DKNG) is currently trading at lows not seen since August 2020. Among Wallstreet institutions, the average valuation currently stands at $64.50 which implies a healthy upside of 79% according to analysts. More recently, Citi analyst Jason Bazinet lowered the firms valuation on DraftKing Stock to $58 while maintaining a Buy rating. Despite lowering DraftKing’s 12 month target following the disappointing Q3 performance, the target still represents a neat upside of 61%.
Looking at the Bear case for Draftking stock, Roth Capital analyst Edward Engel recently lowered their firms forecast on DraftKing stock to $34 a share. In a note to investors, Engel highlighted ESPN’s interest in online sports betting which presents a large threat to the online betting industry leaders.
Furthermore, the analyst believes the potential market share BetESPN would capitalise on “would push DraftKings’ market share towards the low end of management’s 15%-25% long-term targets”.
However not all analysts agree with this view on DraftKing stock. Oppenheimer analyst Jed Kelly Kelly is expecting more product roll-outs in parlays, live-betting and iGaming over the next 12 months. These rollouts provide upside to the companies 2022 revenue guidance according to the analyst.
DraftKing teams up with Faze Clan
Last week, DraftKing announced a partnership with well renowned e-sports giants, Faze Clan. The move re-affirms DraftKings intentions to take market share in the vastly growing e-Sports betting segment. The partnership will see DraftKings appearing across “FaZe Clans digital content ecosystem, including custom content, livestream and tournament events, plus new IP and formats highlighted by original series and a new planned podcast.”
DraftKing will also become the official sponsor of FaZe Clan’s Counter-Strike esports team, increasing the companies exposure to millions of people in the eSports arena. The deal is a strategic one, with Faze Clan’s popularity across the United States likely to increase DraftKing’s product exposure and revenue opportunities.
Revenue Forecasts suggest strong 2022 catalysts
Across 22 Wallstreet analysts, the mean revenue forecast for 2021 currently stands at $1.26 Billion which is right in line with managements guidance. Over the next 12 months, analysts expect annual revenues to grow by 47%. For the fiscal year of 2022, analyst expect Draftkings to generate $1.87 Billion in revenues.
In the Bull case, higher end revenue targets see DraftKing’s generating over $2 Billion in 2022, which would derive from the companies expansion of products including live betting and iGaming. In the companies Q3 earnings presentation, management highlighted their promotional investments in the third quarter will begin to rollover net revenues over the next few quarters.
Cathie Wood continues to back DKNG stock
Cathie Wood’s Innovation ETF currently holds 12.2 Million shares in DraftKing stock, equating to a market value of $440 Million. To date, the funds investment in DraftKing’s makes up 2.27% weighting, the 18th largest investment across Ark Innovation’s entire ETF portfolio. The ARK innovation ETF invests in companies that are expected to be the beneficiaries of shifting bases of technology infrastructure.
On the 15th of November, Ark bought an additional 214,000 shares as the share price dipped under $40 for the first time since October last year. The purchase re-affirms Cathie Wood’s bull position on DraftKing’s despite the falling investor sentiment.
DraftKing Stock Forecast – The Bottom Line
The U.S. added legal sports betting in states like Arizona, Indiana, and Florida this year, with the potential for another seven more states adding legalization in 2022.
DraftKings managed to shrug off a targeted short report earlier this year, but what it has not been able to do is ignore the growing competition. Companies like Penn Gaming (NASDAQ:PENN), BetMGM (NYSE:MGM), and Caesar’s (NASDAQ:CZR) continue to add to their presence in both the mobile and brick and mortar casino scene.
With a newly formed partnership with Faze Clan, it is clear DraftKing’s look to pursue the eSports industry which is forecasted to grow to $2.1 Trillion by 2025. DraftKings will want to be an early mover in the eSports betting submarket, which will heavily impact the DraftKing Stock Forecast for 2025 and beyond.
Overall, DraftKings is trying to add new features that would set them apart, but are yet to prove its success to investors. With profitability still a few years out, the companies management will need to prove to investors that DraftKing’s is here to stay despite growing competition.
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The content above is strictly for informational purposes only and is not financial advice nor does it constitute a recommendation. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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