On four separate occasions in 2023, DraftKings (DKNG) fell 10-15% off its highs, amid concerns about the online sportsbook space and growing competition. Each time, the stock bounced back, finishing the year up nearly +200% and rising to the top position on Keith McCullough's list of signal strength stocks.
Entering today, DKNG once again found itself in a significant dip, this time in a drawdown of ~17%.
Not to worry, said Sean Jenkins.
Hedgeye's Gaming, Lodging & Leisure analyst told McCullough on The Call @ Hedgeye today that DKNG remained a "Best Idea" Long. He also sent the note below to GLL subscribers before the market opened.
Sure enough, by the end of Thursday morning, DKNG was back up +4.5%.
"The drawdown comes with the territory following DKNG's run over the past year. Amid the sell off, we have been keeping close tabs on the data and after this week’s scans of OSB GGR growth, iCasino GGR growth, market share shifts, alt. data, and more, we remain optimistic about the setup for DKNG. In terms of online sportsbook (OSB) market share, we estimate that in totality, DKNG lost about ~300bps M/M in November with some of the losses stemming from weaker hold, and not all due to ESPN Bet. The counter here is that ESPN Bet only had a half month to operate so the market share degradation could be worse in December … maybe as much as 2x worse. That’s possible but would also require the assumption that the velocity of play will remain unchanged among ESPN Bet users. Without the same benefit of sign-on bonuses and promos, we see that as an aggressive assumption.
While investors seem focused on temporary OSB share shifts, there’s not enough emphasis being put on the iCasino business, where DKNG and others had a very strong November. In fact, in our estimates, DKNG gained share in iCasino in November, and the QTD figures are tracking comfortably above our model’s current expectations for Q4.
Looking to ’24, if we assume OSB hold % begins to normalize, and the competitive barrage fades (we have seen this before cc: Barstool, CZR, Fanatics, European operators), and iCasino continues to build on strong SS trends … there’s an attractive risk/reward here. Updated total market share charts can be seen below. DKNG share still up materially Y/Y and only down moderately on a sequential basis. DKNG remains a 'Best Idea' Long."
Yet another instance where data and the diligent research of Hedgeye's analysts prevails over narratives and panic buying/selling.
"That was tight, it was quantified, it was dispassionate, just taking into account a lot of narrative and then showing numbers on the other side," McCullough said after Jenkins' update on The Call. "ESPN Bet launched and every yo-yo on earth thinks they understand, 'Oh, that must be why the stock's down.' A very good casino analyst, like you, who has the best model, like yours, understands this. But 80-90% of people who own the stock don't. It's a perfect opportunity."
For more of Jenkins' insights on gaming, travel and hotels, subscribe to GLL Pro and watch the GLL Show at 11am ET every Wednesday.
