DraftKings Analyst Sees Upside In Stock After NFL Week 16

DraftKings Analyst Sees Upside In Stock After NFL Week 16
  • Needham analyst Bernie McTernan maintained a Buy rating on DraftKings Inc DKNG, with a price target of $20.00. 
  • In McTernan's weekly report during the NFL season, the analyst tracked game results and their potential impact on McTernan's coverage and Apple Inc AAPL iOS app rankings for OSB operators in the sports category.
  • Week 16 results of the five largest spreads Saturday & Sunday likely indicate a negative hold for sportsbook operators, with favorites winning in all the five most giant spread games. 
  • MTD in December, along with the problematic game results in the NFL in October and November, likely ensures a negative impact from hold in 4Q for OSB operators relative to a benefit in 3Q.
  • In the iOS app rankings, FanDuel held an edge over DKNG for the top spot on average for the fourth straight week. 
  • FanDuel has overtaken DKNG for the top spot on average after the leading two operators were in a deadlock since Week 7.
  • Elsewhere in the rankings, Barstool posted its highest average weekly order yet, averaging the #19 spot following its prior record high last week at #23. 
  • Caesars and Pointsbet also averaged their highest weekly average spots this week, at #25 and #41, respectively.
  • McTernan saw DKNG as a leader in the emerging North American online gambling market, a $35 billion market opportunity. 
  • The analyst said the legislative environment supports greater market access as it's a win-win for consumers and states. 
  • McTernan saw an upside to the bull case industry TAM for $50 billion, for which the analyst saw a higher likelihood of playing out than McTernan's bear case of only $18 billion. 
  • Within this market, McTernan believes DKNG has a sustainable customer acquisition strategy that should continue to drive its first- or second-place position in all states. 
  • The analyst expected margins to scale with the tech stack transition to SBTech from Kambi, benefits of national vs. local marketing, and reaching terminal market access penetration.
  • Price Action: DKNG shares traded lower by 2.92% at $11.19 on the last check Tuesday.

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