Credit Suisse analyst Ben Chaiken met with DraftKings CEO Jason Robins in the wake of the first weekend of National Football League play. He found Robins in an positive mood, feeling that Week One “went very well.” Chaiken’s own view was that a slow summer for sports had weighed negatively on DKNG stock and that “results should begin to sequentially accelerate and we would own the stock into a seasonally strong NFL period.”
Chaiken further identified four positive drivers of DraftKings stock over the long haul. Primary was sports media, which the analyst viewed as “the major theme,” as it gives sports betting providers a vehicle for efficiently identifying and retaining customers.
Noting the “major synergy” in Penn National Gaming’s acquisition of TheScore, Chaiken looks for DraftKings to make a similar move, either via internal growth, an acquisition, or both. After all, he wrote, ESPN is still shopping its brand for sports betting partnership — but has yet to find any takers.
“Essentially, we think that having data on the content your customers engage in, duration, and time of day they consume can help sports betting companies more accurately fine tune their acquisition and retention strategies,” Chaiken wrote. If a company gets that right, he added, “It will likely be a definitive competitive advantage.”
As for mergers and acquisitions, Chaiken applauded DraftKings’ purchase of Golden Nugget Online (regulatory approval pending) for its synergies and strategic benefits. Robins believes DraftKings can gain $300 million, in part by removing marketing and cost redundancies and partly through adding revenue. Chaiken suspects that $300 million could be a conservative estimate, as Robins didn’t include the potential of data-mining Golden Nugget’s customer base, which comprises five million people.
He also believes that Golden Nugget’s online live-dealer games would be an asset to the DraftKings portfolio. In addition, he liked the potential in the social-gaming/play-for-fun sphere, which “could be an interesting customer acquisition strategy. … In its simplest form, consumers who have shown an affinity for gambling in a play-for-fun model should make easy conversion, and ancillary product offerings can only help customer retention, in our view.”
Another asset highlighted by Chaiken was DraftKings’ partnership with platform provider Genius Sports, which supplies DraftKings with Same Game Parlay applications using the BetBuilder platform. The analyst believes Robins will tuck Genius Sports into the DraftKings portfolio at some future point. He observed that Robins “also has partnered with Genius for Next Gen Stats and real-time official play-by-play statistics, which we think could begin to usher in some more differentiated content and options for bettors. Bottom line, we think both handle and revenue could begin to improve.”
Summing up, Chaiken wrote that DraftKings’ long game focuses on the U.S. igaming and online sports betting markets. But he urged investors not to overlook the potential of “a larger story,” which encompasses the United Kingdom, South America, and Africa, a narrative in which the total addressable market reflects the value presently baked into DraftKings’ share price, which stood at $59.05 a share as of September 14.
