DraftKings' Potential Revenue Synergy Of PointBet Acquisition Deal: Analyst Perspective

Truist Securities analyst Barry Jonas reiterated a Hold rating on the shares of DraftKings Inc DKNG with a price target of $26.00.

DKNG’s offer for PointBet’s U.S. operations for $195 million represents a 30% premium to the $150 million Fanatics' acquisition agreement announced last month.

PointsBet has a scalable cloud-based wagering platform through which it offers its clients innovative sports and racing wagering products, advance deposit wagering on racing (ADW), and iGaming.

DKNG’s $195 million all-cash proposal would be funded through cash on the balance sheet, without the need for raising additional capital, said the analyst.

The deal represents 18% of DKNG's balance sheet cash as of 1Q23; although with the company expecting to turn profitable, DKNG should have plenty of runway to avoid the need to raise additional funds, the analyst noted.

Management noted that the deal would increase adjusted EBITDA potential in 2025, and would not impact its targeted goal of achieving positive EBITDA in 2024.

The analyst expects DKNG would eliminate several costs given the sizable overlap, although the analyst thinks the company would likely pursue a dual brand strategy initially.

Management does expect potential revenue synergies for the DraftKings brand derived from an enhanced product offering and accelerated development roadmap driving user engagement, remarked the analyst.

With PointsBet’s board meeting on June 30th, the question will be Fanatics’ response given their strong push into OSB, and how committed DKNG is to a deal within the context of their more recent focus on profitability, said the analyst.

Price Action: DKNG shares are trading higher by 0.82% at $24.71 on the last check Tuesday.