DraftKings Acquisition of Golden Nugget Online Gaming Provides Cross-Selling Opportunity, Shows RSI Shares Undervalued: Analyst

The DraftKings Inc DKNG acquisition of Golden Nugget Online Gaming Inc GNOG could fuel the company’s growth in iGaming and technology, according to an analyst.

What Happened: DraftKings announced the all-stock transaction to acquire Golden Nugget Online Gaming Monday morning.

“At its core, DKNG is a technology and data science company and we expect the acquisition of GNOG to positively fuel their data science engine,” Needham analyst Bernie McTernan wrote in a note.

The analyst, who has a Buy rating and $73 price target on DKNG, sees the acquisition as being similar to how DraftKings utilized its large customer database from daily fantasy to online sports betting conversions.

Golden Nugget Online has a database of more than five million customers. DraftKings can try to convert the GNOG customers to join DraftKings online sports betting business and also target the existing iGaming business of GNOG to target daily fantasy players.

Related Link: 3 Sports Betting Stocks That Could Get Bought Out Next 

Why It’s Important: The acquisition of Golden Nugget Online Gaming could also help other sports betting operators, McTernan said.

“We believe this transaction is a positive for RSI as it shows the value in reaching the core iGaming audience,” McTernan said. The analyst has a Buy rating and a $20 price target on Rush Street Interactive Inc RSI.

The analyst notes the acquisition shows strength in the confidence of pending legislation for iGaming and the early innings of the industry.

Only 10% of the U.S. has iGaming access compared to 40% access to online sports betting by the end of the year.

“The market share data shows that omnichannel and related customer database is a valuable tool for driving share which has helped to drive market share among the leaders for MGM in Michigan, RSI in Pennsylvania and GNOG in New Jersey.

DraftKings is aiming for a 15% to 20% market share in iGaming according to its investor day in March. Each additional 5% market share in iGaming is worth $700 million in revenue, the analyst notes.

The multiple used for GNOG of 7.5x 2022 estimated revenue could fare favorably for RSI with shares trading at 3.6x the same multiple. The analyst notes a $21 price for RSI based on the GNOG multiple.

Price Action: On Monday, GNOG shares are up 51.29% to $18.56; DKNG shares are up 1.91% at $52.54, and RSI shares are up 13.26% to $12.56.