Posted on: July 17, 2024, 06:21h.
Last updated on: July 17, 2024, 06:22h.
DraftKings (NASDAQ: DKNG) and Genius Sports (NYSE: GENI) are top gaming equity ideas at Macquarie with the research firm forecasting significant second-quarter growth in iGaming and online sports betting (OSB) revenue.
In a note to clients today, analyst Chad Beynon forecast 34% year-over-year (YoY) online wagering growth in the June quarter for the North American market. That estimate is the aggregate of Macquarie’s forecast calling for 39% growth in online sports betting in the April through June period and a 27% year-over-year jump in iGaming GGR.
With flattish online sports betting (OSB) market hold, we view +39% YoY volume, to lead to slight market beats. Moreover, we expect North America Online GGR growth of +34% YoY, comprising OSB +39% (+23% SS) and iGaming +27% YoY,” wrote Beynon.
In the second quarter, DraftKings garnered 38% of the domestic OSB handle, besting rival FanDuel at 36.5%, according to JMP Securities. Macquarie rates DraftKings “outperform” with a price target of $52, down from $54. That new price objective implies upside of 35.5% from today’s close.
The gaming industry’s second-quarter reporting season starts in earnest later this month with a slew of reports, including DraftKings and Genius, slated for early August. Some operators and technology providers could deliver insight regarding second-half and longer-ranging trends.
Regarding the outlook for the current quarter, Beynon said OSB is off to a strong start, helped by Spain’s Carlos Alcaraz winning Wimbledon. The analyst added that in aggregate, Argentina besting Colombia for the Copa America championship was likely a negative for sportsbook operators, but it could be a positive for Rush Street Interactive (NYSE: RSI) because that operator gets approximately 13% of its revenue from Colombia.
For the current quarter, Beynon estimates North American OSB handle growth of 20%and 30% year-over-year online betting GGR growth for the entirety of 2024. That growth rate is poised to dip to 11% next year before swelling back to 27% in 2026. The analyst said that the 2025 forecast assumes minimal new markets.
However, there’s room for surprises, particularly on the iGaming front. Next year could be active on the iGaming legislation front, particularly with recent, surprising momentum in Ohio to potentially authorize online casinos.
At a time when many growth equities, particularly mega-cap names with artificial intelligence (AI) exposure, are richly valued, Beynon says DraftKings and Genius have the makings of growth at a reasonable price (GARP) names.
The analyst noted both companies should post strong earnings before interest, taxes, depreciation, and amortization (EBITDA) growth through 2026 and the recent selloff in DraftKings is overdone.
“We think the sell-off is overdone as we expect as we expect <5% impact to EBITDA in ’25 (if at all), and see 2Q earnings as a potential catalyst if investors are reassured of this, despite a lower ’24 guide, in our view,” concluded the Macquarie analyst.
