DraftKings Inc. (NASDAQ: DKNG) has been a leader in daily fantasy sports, with roughly 60% of the U.S. market by revenue. Also, the online gaming industry is in its early stages of growth. Both of these factors have led Argus to initiate coverage on DraftKings, and the firm sees significant upside from here.
Argus has a Buy rating and a $65 price target on the shares, which implies an upside of 28.5% from the most recent closing price of $50.57.
As more states loosen gambling restrictions, Argus expects DraftKings to benefit from its market leadership. Investors have recognized the company’s potential, and the shares have outperformed since the company went public in April 2020.
Despite this upside potential, Argus doesn’t expect DraftKings to post a profit this year or next, but it does look for profitability in 2022 and solid growth over the remainder of the decade as the company benefits from economies of scale.
Argus also noted that this company is growing in part by launching operations in states that recently have legalized sports betting. In the second quarter of this year, DraftKings launched sports betting in Colorado and iGaming in Pennsylvania. Since the end of the second quarter, DraftKings has also launched sports betting in Illinois and iGaming in West Virginia. DraftKings is working to enter Virginia and Tennessee for sports betting and Michigan for sports betting and iGaming. All three states have passed legislation authorizing these businesses.
Currently, states accounting for 36% of the U.S. population have legalized gambling, while states accounting for 24% of the population allow online gambling.
Separately, DraftKings has a growth-by-acquisition strategy. SBTech, the company’s B2B business, was acquired on April 23, 2020. The B2B segment’s principal activities involve the design and development of sports betting and casino gaming software. The operations of the B2B segment are located mainly in Europe and Asia, with a growing presence in the United States.
DraftKings stock traded up about 4% to $52.63 on Friday, in a 52-week range of $9.85 to $55.70. The consensus price target is $50.33.
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