A decision by DraftKings Inc DKNG to place a winning bet surcharge in high-tax states was met with backlash and shares fell further Monday night after rival Flutter Entertainment FLUT announced it would not be enacting the same charge.
Analysts examine Flutter's Q2 earnings and a decision by DraftKings to move away from the winning bet surcharge after its rival's earnings report.
The Flutter Analysts:
- JMP analyst Jordan Bender maintained a Market Outperform rating and raised the price target from $246 to $255.
- Oppenheimer analyst Jed Kelly maintained an Outperform rating and raised the price target from $240 to $255.
- Benchmark analyst Mike Hickey reiterated a Buy rating and $255 price target.
- Goldman Sachs analyst Ben Andrews maintained a Buy rating and 193 British pounds ($248) price target on Flutter shares on the London Stock Exchange.
JMP on Flutter: The sports betting company has its foot on the accelerator, Bender said in a new investor note.
"Best U.S. performance in 2Q goes to FanDuel," Bender said of Flutter's U.S. sports betting platform.
U.S. revenue was up 8% from the first quarter, marking the best quarter-over-quarter growth rate for U.S. online gaming, the analyst said.
"The U.S. operations continue to be impressive despite losing iGaming market share in the quarter."
The analyst said a strong July could help the company "reinvest back into its players" ahead of the NCAA Football and NFL seasons.
Bender also said Flutter has a history of growing operations through mergers and acquisitions in recent years. The analyst thinks Flutter could make a splash with more deals.
"The path for U.S. growth appears in a good place, although not dismissing media-focused agreements, and we see management putting its balance sheet to work towards markets like Brazil, Latin America, and Eastern Europe, setting the stage for multi-year growth opportunities."
Oppenheimer on Flutter: Structural hold advantages and higher parlay penetration could help Flutter's financials, Kelly said.
The analyst highlights that FanDuel's second-quarter revenue growth of 39% and EBITDA of $260 million came in higher than DraftKings' reported totals of +26% and $128 million respectively.
Kelly also mentioned Flutter said it would not be placing a winning bet surcharge on bettors in high-tax states after rival DraftKings had previously said it would enact this practice. DraftKings announced it was reversing course after Flutter's report.
"Next catalysts are state data reports and 9/25 Investor Day, with key debates focusing on U.S. iGaming share, tax contagion, and shareholder returns," Kelly said.
The analyst expects FanDuel bot to maintain its U.S. market share lead.
"We believe FLUT is best positioned to navigate states potentially increasing online wagering taxes based on its International scale, operational experience, and higher unit economics."
Kelly said any further gaming tax rates could accelerate "the duopoly emerging between FD and DraftKings."
Benchmark on Flutter: The sports betting company is calling the right plays, Hickey said in a new investor note.
Hickey highlighted Flutter beating consensus estimates for revenue and profitability in the quarter, along with raising full fiscal year guidance.
"This growth was driven by strong performance in the US, where revenue increased by 39%," Hickey said.
Improved product offerings and expanded player prop markets helped boost U.S. sportsbook growth, the analyst added.
"Additionally, FanDuel's migration to a proprietary technology platform enhanced customer engagement, leading to a 58% increase in direct casino customer acquisition and a significant gain in market share."
Goldman Sachs on Flutter: The sports betting company reported strength for several segments with U.S. sportsbook standing out for Andrews.
"U.S. market share continued to be strong in the quarter, as indicated by our industry trackers, with OSB (online sports betting) market share of 51% on NGR (net gaming revenue), or 47% on GGR (gross gaming revenue), and iGaming GGR market share of 25%," Andrews said.
The analyst said Flutter expects to overcome an Illinois tax increase through optimized promotional and marketing spending, without passing the charges onto consumers.
"We view this as a strong quarter and would expect the print to be received well by investors."
DraftKings Impact: DraftKings shares fell Tuesday after market close with Flutter announcing it would not be enacting a winning bet surcharge to its customers.
Around 6 p.m. ET, DraftKings announced via a post on X, that it was reversing course on its previous surcharge decision.
"We always listen to our customers and after hearing their feedback we have decided not to move forward with the gaming tax surcharge. We are always committed to delivering the best value in the industry to our loyal customers," DraftKings said.
Truist analyst Barry Jonas said the decision to ditch the plan comes after rivals like FanDuel said it would not be doing the same practice.
"The reversal should remove some uncertainty around execution risks, but also raises the question of how DKNG can offset the impact and/or if guidance needs to be tweaked," Jonas said.
The analyst reiterated a Buy rating and $50 price target on DraftKings.
"We'll wait for more color on mitigation, but think recent DKNG stock underperformance may reflect a more bearish view around surcharge risks which now appear N/A."
FLUT, DKNG Price Action: Flutter shares are up 9% to $208.41 on Wednesday, versus a 52-week trading range of $174.03 to $226.40.
DraftKings share are trading flat at $31.43 Wednesday, versus a 52-week trading range of $25.41 to $49.57.
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