Online gambling in the US continues to boom and with new players entering the industry all the time, analysts at Barclays believe that the top two market leaders are unlikely to lose their spots but that a battle for third place is likely over the coming years.
Updating its total addressable market (TAM) estimates to US$33 billion for the US industry in the medium term, Barclays PLC (LSE:BARC) expects this figure to jump to US$55 billion in the longer term, having incorporated Canada into predictions.
“We believe that the next legs for US sector valuations will be the legalisation of sports betting in a large state such as California, Texas or Florida, and broader i-gaming legalisation,” analysts added.
So which companies should investors be watching?
Flutter/FanDuel
FanDuel, the online sportsbook owned by UK firm Flutter Entertainment PLC (LSE:FLTR), currently holds the number one crown in the US market but Barclays noted that almost all the business has been priced into its parent company’s shares.
Estimating an enterprise value of US$17.2 billion has been priced into Flutter’s shares, the UK bank sees it as “the best-in-class online betting operator” but reiterates an “equal weight” rating for the stock.
Source: Business Insider
Barclays said: “FanDuel remains the leading online sports betting product according to our own parlay analysis for the opening NFL game, and also appears to be superior to its main peers in an app testing review.”
Targeting a £160 share price, which represents just under a 9% upside to the current price, analysts warned of near-term share losses given the increased competition.
Improving the strength of its offering to drive better monetisation and retention, FanDuel has been able to build upon its gross and net win margins and was able to turn profitable earlier this year.
Entain/BetMGM/MGM
Fighting for the third spot in the industry rankings, BetMGM, Entain’s joint venture with MGM Resorts, looks set to claim the bronze medal position despite rivals Caesars and Penn Entertainment nipping at its heels.
“BetMGM is undervalued in our view, in both the Entain PLC (LSE:ENT) and MGM Resorts International (NSX:MGM) share prices,” says Barclays, which believes the enterprise value from the 50/50 venture has been priced at US$0.2 billion for MGM and US$0.6 billion for Entain.
BetMGM Source: Gaming Intelligence
Market share at BetMGM has been slipping but MGM Resorts, which will likely be more concerned with the fallout of a cyberattack it suffered last week, is not expected to be hugely affected as “there wasn’t much value for BetMGM ascribed in the shares”.
“We think the pressure that these various dynamics continue to place on MGM's ongoing M&A dance with Entain is a more significant driver of share sentiment,” analysts added.
Barclays rates Entain ‘overweight’ and predicts its share price will reach £15.20, representing a 36% upside to the current share price.
DraftKings
Second place and with no ties to the UK, the Boston-based group was one of the earliest movers into the market, and with US$15.5 billion already priced into the stock, Barclays believes it has “solidified its place as a leader in the space”.
“We expect DraftKings to take a little share [in the near future] … that said, we simply see much of the good news already priced in at current levels,” the UK bank pointed out.
DraftKings bookies in Michigan Source: SBC America
Shares in Draftkings Inc (NASDAQ:DKNG) have soared by close to 185% this year as it reported close to US$73 million in profits in its last quarterly update despite having made a loss of US$118 million a year prior.
Penn/ESPN Bet and Caesars
Two of the smaller players in the industry, Penn initially entered the online sports betting market after entering a joint venture with Disney a few months ago to create ESPN Bet, no value has been priced into its shares yet as the sportsbook isn’t going to launch until midway through the NFL season.
“Penn arguably has the least value baked into shares today for digital, and while we are highly sceptical of its long-term 10-20% market share goals for ESPN Bet, we also think the market is far too bearish on what we see as the most likely outcome for this deal,” Barclays said.
Caesars Entertainment, Barclay’s “most-favoured gaming name”, is more focused on its i-gaming offerings as it already has a clear competitive advantage and less so on online sports betting.
Caesars Sportsbook Source: SBC America
Focusing on letting marketing deals help its online offerings drift towards profitability, analysts reckon it won’t lead to growth in market share but think a best-in-class rewards program will help it hold on to the customer base it already has.