In a triumphant turn of events, DraftKings has garnered recognition from two prominent analysts for its effective cost management and impressive hold in select markets. Analysts Carlo Santarelli of Deutsche Bank and Joseph Greff of JPMorgan both expressed their optimism about DraftKings, with Santarelli raising his price target for the stock to $24 from $22, and Greff increasing his price objective to $20. While these targets fall below Thursday’s closing price of $25.23, the positive sentiment is clear. Santarelli, impressed by the iGaming metrics exceeding expectations, also adjusted his revenue projections for DraftKings in 2023 and 2024.
While DraftKings has diligently focused on cost reduction throughout the year, the Deutsche Bank analyst believes that the operator is benefitting from an enhanced hold.
Santarelli noted that the primary driver of DraftKings’ year-over-year market-share growth has been its strong hold, which stems from wider spreads, same-game parlays, and the operators’ improved ability to identify and limit sharp bettors. These factors contribute to the overall positive outlook for the industry, including DraftKings.
Related: Founder of Golden Nugget Online Gaming Departs DraftKings
DraftKings’ acquisition of Golden Nugget Online pays dividends
It has been over a year since DraftKings completed its all-stock acquisition of Golden Nugget Online Gaming (GNOG), led by Tilman Fertitta, for a staggering $1.56 billion. This strategic move has proven to be highly advantageous for DraftKings.
The acquisition of GNOG established DraftKings as a prominent player in the online casino space while enabling the company to gain market share in states where GNOG was already operational. Santarelli estimates that DraftKings’ market share has now reached 31%, thanks to successful launches in states that recently introduced online sports betting, including Kansas, Maryland, Massachusetts, and Ohio.
“We view the consistency of DKNG’s OSB share favorably, and believe that unless there is a significant change in the industry due to new competition, which we find unlikely, DKNG is poised to maintain or even increase its market share,” Santarelli observed.
Florida, however, may not contribute to DraftKings’ growth story due to the Seminole Tribe’s dominance in the state’s gaming industry, according to Santarelli.
Related: FanDuel, DraftKings, and Bet365 take the lead in exciting in-game betting race
Parlay holds increase, but a tipping point looms
Same-game parlays have emerged as a highly profitable avenue for operators like DraftKings and FanDuel, effectively enticing customers and boosting hold.
Yet, there is another side to this success story. Santarelli highlights that as operators increase their hold, the cost of entertainment for bettors also rises, suggesting that there is a limit to how long customers will continue to participate in bets that favor the operator. He draws parallels to the introduction of 6-5 blackjack and triple-zero roulette on the Las Vegas Strip, which initially boosted casino revenue but ultimately resulted in a decline in table games play.
“While we believe this threshold has not yet been reached and do not expect it to happen anytime soon, given FanDuel’s experience relative to the broader market, historical anecdotes imply that it can happen,” concluded Santarelli.
With improving hold and a commitment to consistency, DraftKings is poised to capitalize on its momentum. However, it remains crucial for operators to strike a delicate balance in order to sustain customer engagement and avoid potential saturation in the market.
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