Posted on: February 27, 2024, 06:41h.
Last updated on: February 27, 2024, 06:41h.
While most sportsbook operators were pinched by the Super Bowl because the underdog Kansas City Chiefs won outright, DraftKings’ (NASDAQ: DKNG) first-quarter earnings might prove sturdy due to the operator winning on parlays and some popular proposition wagers.
Following a meeting with several high-ranking DraftKings executives, including co-founder and CEO Jason Robins, JPMorgan analyst Joseph Greff said he came away “incrementally impressed.” He added that the operator likely notched decent hold on the Super Bowl because neither Kanas Chiefs tight end Travis Kelce nor running back Isaiah Pacheco scored touchdowns in the big game, meaning plenty of DraftKings clients that built same-game parlays with those props lost.
Continuous product iteration and technology competencies are driving higher structural hold rates, benefiting from increased adoption of its higher-margin parlay products and other diversified bet types that are unlocking increased engagement and monetization of its customer base,” observed Greff.
The analyst added DraftKings’ overall Super Bowl hold was solid even with the Chiefs winning and the operator may have given a clue to that effect by raising 2024 guidance earlier this month.
DraftKings iGaming Future Bright
As has been widely documented, gaming companies, including DraftKings, are enthusiastic about the long-term outlook for internet casinos, but just six states currently permit that form of wagering.
Greff told clients that DraftKings is considering pitching iGaming in Illinois as an avenue for plugging gaps in the that state’s budget. That’s viewed as a potential compromise to Gov. J.B. Pritzker’s (D-IL) recently proposed budget, which pitches raising the state’s tax on sports betting to 35% from 15%.
The JPMorgan analyst added that the DraftKings executives cited bullish revenue trends in the states that allow internet casinos and that the outlook for expansion is bright because some states, including New York and some in New England, are grappling with budget constraints and need to find new sources of revenue.
The executives also discussed DraftKings’ recently unveiled $750 million cash/stock deal for online lottery provider Jackpocket, telling Greff the firm will initially function as a standalone entity and later be integrated into the buyer’s sports betting and iGaming platforms. The acquisition could help DraftKings expansion efforts, including into Texas where Jackpocket is already operational, according to the analyst.
Speaking of Expansion…
DraftKings management told Greff they remain open to additional acquisitions and with a soaring share price and with $1.27 billion in cash and cash equivalents on hand at the end of 2023, the operator has the resources with which to make deals.
The analyst noted that the gaming company is open to international purchases and while specific jurisdictions weren’t mentioned, it appears DraftKings is unlikely to go shopping in Western Europe due to limited growth opportunities in that region.
Greff pointed out that given the firm’s strong cash position, it could consider a share repurchase program, but a potential dividend wasn’t mentioned.
