Wall Street Bets is a roundup of recent notes from analysts covering the gambling industry.
Prediction markets for DraftKings, FanDuel?
Daniel Politzer of J. P. Morgan on September 2 looked at why prediction markets may be enticing to established operators.
“Net, we think this potential total addressable market (TAM) -expansion opportunity is too good to pass up for online sports betting operators such as DraftKings (OW, $53 PT) and FanDuel (owned by Flutter, OW-rated/covered by JPM Europe analyst Estelle Weingrod),” Politzer wrote. “However, prediction markets’ growing popularity has drawn scrutiny from OSB stakeholders, including state gaming commissions, tribes, sports leagues, and responsible gaming advocates. OSB operators are now between a rock and a hard place, having to balance the allure of an expanded TAM vs. maintaining relationships with stakeholders that could eventually determine where full and/or igaming ultimately gets legalized.”
Investors interests
David Katz of Jefferies, in an August 31 note, wrote that investors are interested in the prospects of Churchill Downs, Wynn and Six Flags Entertainment Corporation.
“In a relatively quiet week, the performance of these three stocks, -0.3%, +10.9% and -12.9% for the week, respectively, was a focus of investors,” Katz wrote. “In our view, Six Flags is impacted by the void of information on leadership and guidance, which challenges a reasonable support level. Meanwhile, the updates from Macau suggest GGR could be up 13-16% in August, which we believe is driven by several forces, but nonetheless implies ~20%+ growth in EBITDA, which is not reflected in estimates. The start-off to September would be critical in whether there is follow-through on the strength in a seasonally quiet month ahead of October Golden Week. Finally, the weakness in Churchill Downs is driven by any obvious trend, with monthly data points coming in solidly, most notably in Virginia. However, the closing of Salem casino property could bring incremental capital spending, which we believe could be weighing on the shares.”
Las Vegas outlook
Barry Jonas of Truist Securities examined Las Vegas Strip properties on August 29.
“July Strip GGR rose +6% year-over-year, though this factored an easy comp (very poor baccarat hold last year) while GGR both ex-baccarat and normalized was down -2%,” Jonas wrote. “At the same time, both visitation and revenue per available room were weak, each down -12% year-over-year. Locals GGR was also a bit weak, down -2% year-over-year on weaker tables performance. We note Nevada slot accounting had an impact, with a full weekend of slot revenue (not handle) pushed into July 2024 resulting in tougher slot comps for the month. As we highlighted in our recent Vegas room survey note, we think investor expectations for Q3 results are modest while the bigger question is whether an inflection hits in Q4.”
Betting on the NFL
Chad Beynon of MacQuarie on August 26 looked at what stocks are best to own as the NFL season starts.
“We highlight DraftKings/Flutter (FanDuel) as top online stocks to own into NFL season,” Beynon wrote. “Online gaming stocks are +40% year-do-date (versus +10% S&P 500), driven mostly by Sportradar (+82%), Rush Street (+53%), and Genius Sports (+50%), which benefit from more insulated business models to game outcomes and regulation, while DraftKings/Flutter lagged at +26%/+16%, respectively, as increased tax rates in New Jersey, Illinois, and Louisiana acted as an overhang given higher relative online sports betting exposure. With that said, we think this is mostly priced into the shares today, and view DraftKings/Flutter as best positioned for near-term upside from favorable NFL game outcomes, higher structural hold, and general OSB/iGaming growth momentum in 4Q. While history has shown that holding DraftKings/Flutter for the two months leading up to opening NFL week has been most profitable, we think the underperformance in 4Q is from disappointing hold rates, which dropped by 100-200 basis points sequence on average.”
