DraftKings stock gets boost from bullish Morgan Stanley note
Analyst note touts online gaming giant as ‘too big an opportunity to ignore’
DraftKings saw its stock price surge by nearly 20% on January 26 before settling with a 5.2% rise for the day on the strength of a Morgan Stanley analyst note indicating the online gaming giant will be “one of the winners” in a fully developed and mature US betting market.
The note, titled ‘Too Big an Opportunity to Ignore,’ detailed how DraftKings finds itself in an advantageous position in the burgeoning US gaming space, despite a sector-wide prioritization on market-share growth over near-term profitability.
“Though there is a lot of negative written about the levels of marketing and promotional spending, this has driven a very concentrated market that only players of scale can really compete in,” the Morgan Stanley analysts wrote.
DraftKings has been among the most aggressive operators in terms of acquisition-related spend, but it has paid off to the tune of approximately 25% share of the online market in the US, second only to FanDuel.
It has also dedicated significant attention to future cross-selling opportunities such as igaming and an emerging NFT marketplace.
“While we and the market have been focused on near – to medium-term profit concerns, we believe at the current price ($19 per share), one should not ignore that DKNG is a leading market share player in what will be a very large profitable market,” the analysts wrote.
The note went on to cite the recent figures released by the New York State Gaming Commission from less than two weeks of legalized online sports betting in the state – $603m in handle, including a 22.3% market share for DraftKings – as further evidence of the significant appetite for mobile betting in the US.
As a result, Morgan Stanley has increased its 2025 Total Addressable Market (TAM) forecasts from $19bn to $21bn, with the analysts conveying confidence about DraftKings’ path to profitability.
“Our deep dive of state-by-state marketing and profitability suggests DraftKings’ losses should be lower in 2023 than 2022 (and 2021), which we believe could be a major positive catalyst for the stock (though admittedly ~one year away),” the analysts noted.