Online Wagers Could Become a $40 Billion Business, an Analyst Says. DraftKings and Penn National Will Grab a Big Share.
The logo for DraftKings is displayed on a laptop computer
Gabby Jones/Bloomberg
Sports betting and online gaming could eventually become a $40 billion business as more people take to their phones to wager on their favorite sports teams and play online casino and fantasy games, according to one analyst at Piper Sandler.
Already in New Jersey, one of the most mature sports betting markets outside Nevada, sports betting generated $300 million in revenue for fiscal 2019, 82% of it online, according to Piper Sander analyst Yung Kim.
The analyst initiated coverage of Penn National (ticker: PENN) with an $84 price target and DraftKings (DKNG) with a $58 price target, giving them both Overweight ratings.
Shares of Penn National fell 0.16% on Friday but are up more than 175% this year. DraftKings fell 3% but are up 349% for the year. The S&P 500 is up 10.5%.
Just days ago Loop Capital Markets analyst Daniel Adam started coverage of DraftKings with a Buy rating and a $100 price target. The stock currently trades around $48. He estimated the potential online sports betting and igaming market could get to around $30 billion, versus current expectations of $20 billion.
DraftKings raised its 2020 outlook this month, saying it expected record revenue in a range of $540 million to $560 million for the year, which is up from $500 million to $540 million. It expects 2021 revenue in a range of $750 million to $850 million.
The Piper analyst said DraftKings’ fantasy sports offering has helped it build a brand that can gather “a significant share” of the market.
“We look for DraftKings to transition the >4M paying users in its database of daily fantasy sports players to both sports betting and igaming,” Kim said.
Nevada, the U.S. gambling epicenter, handled $5.3 billion in sports bets last year, according to legalsportsbetting.com, but legal sportsbooks have spread to other states in the past few years after a 2018 Supreme Court decision allowing it.
There are 25 states and the District of Columbia that allow legal sports betting but only 15 states (and D.C.) have online options. Piper’s Kim says the online sports betting market could grow to $11 billion from $3 billion now, with 65% of the U.S. population using legal mobile betting apps.
The online gaming market could also explode to about $7 billion, Kim said.
“There are three levers here: percentage of U.S. population living in a state with legal sports betting and/or igaming, average revenue per person in the state and market share attained by competitors,” the Piper Sandler analyst said in a note.
Penn National took a sizable stake in Barstool Sports earlier this year and announced earlier this month it was opening its first retail Barstool sportsbook at the Ameristar Casino Resort Spa Black Hawk near Denver.
Piper’s Kim said Penn could find new sources of revenue through Barstool, which has 66 million monthly users and officially rolled out its Pennsylvania sportsbook app in September, with 60,000 downloads. “We view the early results as a strong start,” Kim said.
Write to Liz Moyer at [email protected]
