Goldman Sachs Raises Sports Betting and iGaming TAM and Price Targets of Key Players on Favorable Legislation and Consumer Adoption

March 23, 2021 10:07 AM EDT
Get Alerts DKNG Hot Sheet
Price: $55.64 -0.13%

Rating Summary:
    19 Buy, 7 Hold, 1 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 18 | Down: 23 | New: 29
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Goldman Sachs analyst Stephen Grambling is bullish on the outlook for sports betting and iGaming sectors, which represent “one of the biggest growth stories in consumer” going forward.

To reflect this bullish stance, the analyst has raised his total addressable market (TAM) projection from $900mn/$1.5bn markets today to $39bn/$14bn in 2033, respectively. The investment banking giant is due to host “The Goldman Sachs Digital Evolution of Gaming” Conference this week (March 25th).

“To put this growth in perspective, the total growth would compare to 18% growth in e-commerce ex-travel over the past decade with no individual category growing faster than a 22% CAGR. Importantly, sports betting and i-Gaming do not have physical distribution centers, so capital requirements are far more limited, particularly when comparing online to off-line equivalents across categories. As a result, returns on invested capital have the potential to be significantly higher than other categories with physical products, allowing for more moderate decremental margins,” Grambling wrote in a research note sent to clients today.

“Sports betting’s social aspects also allow for network effects, which translate to scale benefits and a competitive moat for leaders. These benefits have not been lost on constituents across the space, with media companies and sports leagues investing in various operators throughout the industry. In our view, these lines will continue to blur as online sports apps become the tip of the funnel for consumer acquisition and engagement, with substantial data collection creating new revenue opportunities.”

On the legislation front, the potential for legalization of online sports betting (OSB) in New York and Texas has been a key catalyst for sports betting names, particularly Draft Kings (NASDAQ: DKNG), Penn National Gaming (NASDAQ: PENN), and Rush Street Interactive (NYSE: RSI).

“Legalization, especially in large states, has implications for the near-term TAM, and long-run proposals for the market structure in legalizing states has implications for individual operators’ long-run TAM,” adds Grambling.

The analyst notes that investors’ focus is mostly on four key themes: 1) trajectory of market share; 2) long-term margin structure; 3) comparing/contrasting iGaming vs. OSB; and 4) media convergence.

In this context, price targets for DKNG are raised to $87.00 per share (up from $79.00), RSI to $25.00 (up from $23.00), Caesars Entertainment (NYSE: CZR) to $95.00 from $92.00, and PENN to a 'Street High' $153.00 from $139.00 prior.

DKNG and PENN are rated 'Buy', while CZR and RSI are rated 'Neutral'.

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