Editor's Note: Below is a complimentary excerpt on our DraftKings (DKNG) research note from our Gaming, Lodging, and Leisure (GLL) analyst Todd Jordan. If you are an institutional investor interested in accessing our research email firstname.lastname@example.org
We're adding DraftKings (DKNG) as a Best Idea Short.
We think the current valuation may be unsustainable in the face of a number of negative catalysts we foresee.
Following our detailed review of the company, the industry landscape, and a refresh of our industry growth and TAM analysis, we believe the setup is skewing negative for $DKNG. After a very strong year, we see potentially negative catalysts that could reverse what has been very positive momentum for $DKNG and the broader Sports Betting and iGaming industries.
Over the long term, we like the $DKNG brand, its competitive positioning, and financial flexibility. But, a big valuation may not withstand the negative rate of change we see:
Decelerating growth post vaccination, the impact of market share pressure on sentiment, the overreliance of new (not yet legal) markets on out year estimate, the risk that New York or another state opts for a single platform structure, and the risk of bad behavior by new market entrants (there’s plenty on the come up).
With more market cap being created by the day, the stakes are high and the expectation to deliver on growth is too – not just for $DKNG, but for the total industry landscape.