In a move that sent DraftKings stock climbing to $21.85 per share, an increase of 13%, Morgan Stanley analysts took the view that DraftKings is a large player in a market that is only going to expand over the forthcoming years. Indeed, its report forecasted that the gambling industry is set to be worth $21bn by 2025, an increase of $2bn over its last projection.
This, however, comes despite a recent plummet in DraftKings’ stock. When the report was released, DraftKings’ stock sat at $19 per share; for context, the operator’s stock was valued at over $63 in September 2021.
If the company continues at its current rate of growth, though, approximately 60% until 2025, Morgan Stanley advises traders to purchase until the brand hits $31 per share. If the forecast holds true, those buying now would make nearly $10 profit per share in little over three years.
Thomas Allen, Analyst, Morgan Stanley, commented: “While we and the market have been focused on near to medium-term profit concerns, we believe at the current price, one should not ignore that DraftKings is a leading market share player; in what will be a very large profitable market.
“New York results on Friday remind us that the US sports betting/iGaming market is likely to be very large, with only a handful of market share winners. We expect DraftKings to be one of them, and with sentiment at an all-time low on near-term loss concerns, we see now as a good time to invest for the long term.”
Indeed, a key factor influencing the projected market growth was early results from New York, which legally allowed betting operators to launch online sports gambling this month. Morgan Stanley expanded its 2022 forecast from $600m to $1.9bn, following positive results from New York and other states, like Arizona.
The report suggests that, while DraftKings will need to raise capital investment before 2024 to continue growing at a similar rate, high barriers to entry will limit new competitors from gaining market share.
