They’re direct competitors, but when it comes to FanDuel parent Flutter Entertainment (NYSE: FLUT) and DraftKings (NASDAQ: DKNG), what’s good for one can benefit the other.
That was the case Wednesday when Flutter told investors it sees the total addressable market for gross gaming revenue (GGR) in North America swelling to $70 billion by 2027. The forecast includes $63 billion attributable to the US, which is 1.5x higher than the operator’s prior estimates and doesn’t include the addition of new states into the iGaming or sports betting folds. That’s bullish for FanDuel, but the outlook also sparked a rally in shares of DraftKings.
In a note to clients today, JPMorgan analyst Joseph Greff said that when applying Flutter’s FanDuel projections to DraftKings, the implication is that DraftKings could generate as much as $8.2 billion in revenue and $1.9 billion in cash flow in 2027.
“(FanDuel’s) upbeat scale commentary is positive for DKNG and suggests the sector is really a two-horse race,” observed the analyst. “We like it (the stock) here and see it as somewhat contrarian and a fresh money idea.”
FanDuel Outlook Adds to DraftKings Rally
Flutter’s constructive commentary on the North American market is pertinent to DraftKings for another reason. In the US, that company and FanDuel hold a duopoly in which they control more than 70% of the market. That status has been reaffirmed through the first three weeks of the 2024 NFL season when DraftKings and FanDuel combined to garner 55% of all downloads of mobile sports betting applications, according to Eilers & Krejcik Gaming (EKG).
DraftKings’ pop on the back of the Flutter announcement added to a surge that’s seen the stock rally nearly 15% off its August lows. Analysts believe DraftKings can benefit from many of the same catalysts that are boosting FanDuel.
We believe DKNG should see similar upside as the company continues to improve its parlay offering and parlay betting becomes more mainstream over time,” wrote Truist analyst Barry Jonas in a report.
He added that Flutter’s strong ex-US exposure could compel DraftKings to look outside this country for deals in the future and that if there is an area in which FanDuel clearly bests its rival, it is risk-management where FanDuel’s strength in pricing accuracy “helps to limit the variability of short-term results.”
DraftKings Insiders Still Selling
While DraftKings stock has rallied over the past month, some insiders have sold into that strength. A Form 144 filing with the Securities and Exchange Commission (SEC) indicated that on Sept. 25, co-founder Paul Liberman sold 643,654 shares, grossing proceeds of $26.39 million. That continues a trend of rampant insider selling at the gaming company.
Liberman’s sale of DraftKings stock came after some of his restricted shares in the firm vested. He also sold shares in August.
Some retail investors have decried the level of insider selling at DraftKings, claiming those transactions are stifling further upside for ordinary shareholders.
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