On September 2, shares of US-traded sports betting company DraftKings (NASDAQ 🙂 skyrocketed when it was announced that basketball legend Michael Jordan would become an investor and special advisor.
In the US, DraftKings and FanDuel, which is part of the UK-based Flutter Entertainment (LON :), are the two main platforms for sports betting and fantasy sports betting. Below, we take a look at the growth in the industry and the stocks of these two companies to see if they deserve to be on investors' radar.
What is Fantasy Sports Gambling?
Boston-based DraftKings was founded in 2012 as a fantasy sports platform that allows participants to create their dream teams with real players and potentially win cash prizes, usually derived from entry fees.
Statistics from the Fantasy Sports & Gaming Association show that there are more than 60 million fantasy sports players in the US and Canada.
In the US alone, the fantasy sports market is expected to grow by $ 9.34 billion at a compound annual growth rate of 10%. Likewise, the U.S. sports betting market is expected to reach $ 5.7 billion by 2024. This growth comes after the U.S. Supreme Court's ruling repealing federal law that previously restricted sports betting to a handful of states. Now all states can set their own sports betting rules.
DraftKings went public through an SPAC
DraftKings went public in late April through a special acquisition company known as a SPAC, in lieu of a conventional IPO. It merged with Diamond Eagle Acquisition Corp., an already publicly traded SPAC, and SBTech.
Up to 20% of the volume in the IPO market currently comes from SPACs. In recent months, Virgin Galactic (NYSE 🙂 and Nikola (NASDAQ 🙂 have also gone public through a SPAC transaction.
When a young company like DraftKings merges with an SPAC, it can avoid many of the hurdles associated with an IPO or the sale of new shares.
Diamond Eagle was listed at $ 10 per share in 2019, which is a typical initial listing price for SPAC companies.
Within months, shares rose to $ 18.69.
What to expect from DraftKings and Flutter Entertainment Now?
The Street initially debated the timing of DraftKings to go public amid the global pandemic. After all, there was no live sport to bet on in April.
To keep customers engaged, the company created new product offerings, including eNASCAR, Counter Strike, and Rocket League. It also launched a series of free-to-play pop culture pool matches covering topics from political debates to competitive reality TV shows.
Since the IPO, DKNG shares have been volatile. It was officially listed on April 24 and started at $ 20.49. On June 2, it hit a record high of $ 44.79. It closed at $ 38.27 on Thursday. As a result of the rapid rise in the stock price, the P / B ratio of 11.48, a high number.
Flutter Entertainment is one of the largest gambling companies in the world in terms of revenue. The company has grown both organically and through acquisitions. So far in 2020, the share of FLTR, which is listed in the, has also been choppy.
Flutter Entertainment chart.
After the rapid decline in March, stocks recovered remarkably. Now they are up about 32% over the year. of the company showed that poker and gaming segments flourished despite a decline in sports revenues. The forward P / E and P / B ratios are currently 24.31 and 1.55.
Security protocols are currently being drafted in the United States so that elite sport can return. However, there are still question marks. For example, a number of Major League Baseball games have already been postponed because players tested positive for COVID-19. Therefore, both DraftKings and FanDuel can face headwinds if customers are unable to place bets.
The Bottom Line
Investors looking to capitalize on the potential of sports betting and the growth of fantasy sports in the US should consider exploring both companies further.
However, we believe that both stocks are now expensive as their current prices may take into account a full game schedule. But a potential increase in the number of COVID-19 cases could easily mean that all bets are off. This can cause the price of each share to fall by about 10-15%.
If we had to choose between the two companies, we would prefer Flutter, as his activities are not limited to the US. It is also an established company operating globally.
Finally, growth companies like DraftKings tend to make money extremely quickly. If the business is not generating enough income, it can easily get a financial headache. However, it could also be a takeover target that would benefit current shareholders.
