One investing thesis that has performed very well in 2020 has been U.S. online and sports gambling. On Tuesday, Bank of America analyst Shaun Kelley took a close look at the type of margins sports gambling investors can expect from the business in the long-term.
The Numbers: At this point, early market movers are reporting large losses as they fight for initial market share on a state-by-state basis. However, Kelley believes these businesses will eventually be able to achieve 30% EBITDA margins at scale.
“Between sports and iGaming, we expect iGaming will be the higher-margin business owing to lower platform, content and ongoing promotional costs but current gaps should narrow as marketing spend for sports betting rationalizes,” Kelley wrote in a note.
Kelley said DraftKings Inc DKNG, FanDuel and MGM Resorts International MGM have each already spent more than $100 million in 2020 on sports betting and iGaming marketing.
At the same time, Penn National Gaming, Inc PENN and its Barstool app have achieved 15% market share in Pennsylvania with virtually zero external marketing spend, but Kelley said that's only one state in a very short period of time.
Finally, Kelley said Caesars Entertainment Inc CZR could choose to take a more conservative, “profit first” approach to its marketing efforts.
Related Link: Fox Is An Under-The-Radar Play On US Sports Gambling
How To Play It: Bank of America has the following ratings and price targets for the sports betting and iGaming stocks mentioned:
- Penn National: Buy rating, $85 target.
- DraftKings: Neutral rating, $55 target.
- Caesars: Neutral rating, $65 target.
- MGM: Underperform rating, $15 target.
Benzinga’s Take: There’s no question U.S. iGaming and sports betting will be a huge market as it expands throughout the country on a state-by-state basis. However, stocks like Penn and DraftKings have already priced in a significant amount of growth after gaining 159% and 300% year-to-date, respectively.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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