DraftKings Having Tough Time Attracting Shareholders

DraftKings Inc. (DKNG) is trading higher by a few cents on Wednesday after the New York State Legislature approved the legalization of mobile sports betting. The consent opens the door to one of America’s largest gambling populations at the same time the competitive landscape for betting sites is growing at a geometric rate. As with streaming-video-on-demand (SVOD), this crowded venue is likely to reward winners and punish losers in coming quarters.

New Venues Driving Growth

The state will whittle down the number of permitted operators, with special consideration to “tribal gaming partnerships”. DraftKings should make the final cut but as many as six companies could ‘go live’ when the law goes into effect in late 2021 or early 2022. Meanwhile, legalized betting in many states as well as recent deals with World Wrestling Entertainment Inc. (WWE) and the UFC should keep quarterly revenue growth on the fast track.

Oppenheimer analyst Jed Kelly posted upbeat comments after the approval, noting “New York approved a hybrid limited-operator online sports betting (OSB) model as part of its 2022 budget. We believe based on the RFP process and the high amount of taxes/fees, that well capitalized players with a strong presence in NJ and large customer data-bases such as DKNG and Fanduel are well positioned to be key operators when the state goes live”.

Wall Street and Technical Outlook

Wall Street consensus is mixed despite rapid state level approvals, with an ‘Overweight’ rating based upon 16 ‘Buy’, 1 ‘Overweight’, 8 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $41 to a Street-high $105 while the stock opened Wednesday’s session more than $10 below the median $75 target. This low placement suggests Main Street investors are avoiding exposure due to growing competition and a long string of quarterly losses.

DraftKings cleared March 2020 resistance in the upper teens in May and took off in a strong uptrend that topped out in the 60s in early October. The stock got cut in half into November and turned higher once again, stalling in the low 70s in March 2021. Price action since that time has carved an aggressive selloff after each rally impulse, setting off a wave of bearish accumulation divergences that could signal lower prices.

For a look at all this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.