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Monthly Stock Watch: Sports Betting Stocks Rally From 2022 Lows

Following a tumultuous stretch, there are finally signs that sports betting stocks are ready to boom

Matt Rybaltowski by Matt Rybaltowski
August 4, 2022
in Industry
Monthly Stock Watch

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Each month, our “Stock Watch” series examines recent trends inΒ sports bettingΒ equities across Wall Street and outside the U.S. on top global exchanges. The red-hot U.S. sports betting market is expected to grow to nearly $40 billion in annual revenue by 2033, according to Goldman Sachs. One prominent investment manager, Cathie Wood of Ark Invest,Β has taken a large position in DraftKings. She is not alone, as a wide range of institutional investors are bullish on sports betting. Come here early each month for a review of stock moves among the top publicly traded companies in the sports betting space.Β 

After enduring a long, painful slide, there are indications that a host of beaten-down sports betting stocks may have finally hit bottom — and are poised for a rebound.

Some of the top industry names, many of which maintained market capitalizations in excess of $20 billion a year ago, showed signs of recovery in July. DraftKings, which dipped below $10 a share in May, surged more than 15% in July, producing only its third positive month over the last year. Over that span, DraftKings’ stock plunged more than 70%, wiping billions of dollars from its market cap. Two traditional Las Vegas powers, MGM Resorts and Caesars Entertainment, also moved higher in July, each gaining more than 14% for the month.

Sports betting stocks have endured a horrendous 10-month period, battered by the combination of runaway inflation and skepticism that top companies can deliver long-term profitability. The projected time frame for when the companies will break even has served as a major topic of discussion on 2022 second-quarter earnings calls. Both Caesars and BetMGM lost more than $65 million on the quarter from online gaming, giving fuel to detractors who argue that digital sports betting is too costly.

$MGM lost $71 million from BetMGM between April and June of this year. It made nearly $1.2 billion from slot machines during that same time.

— Ryan Butler (@ButlerBets) August 3, 2022

Major sportsbook operators are continually searching for ways to acquire and retain customers without breaking the bank. The spending wars hit an inflection point in February, when Caesars Entertainment CEO Tom Reeg declared that the economics of attracting new sports bettors had become unsustainable. Although the costs have come down somewhat, the companies are still scurrying for ways to solve the intricate puzzle.

Typically, marketing costs for top sportsbook operators drop in the early portions of the second half due to a quiet summer sports calendar. During Caesars’ earnings call on Wednesday, Reeg indicated that he expects marketing efforts to pick up again as the start of football season nears.

DraftKings (DKNG)

Opening price on July 1: $11.75

Closing price on July 29: $13.73

Monthly percent gained or lost: 16.9%

Year-to-date change: (-50.7%)

Market cap: $7.35 billion (as of Aug. 4)

Gaming equities analysts will receive further insight into acquisition trends across the industry Friday when DraftKings reports second-quarter earnings. According to the Zacks consensus estimate, DraftKings is expected to post revenue of of $438.2 million for the period, a massive increase of 47.3% from the same quarter in 2021.

Analysts are more focused on the company’s earnings metrics, where DraftKings is expected to report a second-quarter loss of $0.87 per share, a decline of 14.5% from last year’s Q2. In that quarter, DraftKings incurred sales and marketing expenses of $171 million.

Ahead of Friday’s call, DraftKings jumped 9% in Wednesday’s session before reaching $17.15 in pre-market trading on Thursday. It marked DraftKings’ highest level since April 19. On July 20, Truist Financial reduced its price objective on DraftKings to $16 a share, while Citigroup lowered its objective to $20 earlier in the month. A wider look at forecasts from a group of analysts, however, pegs DraftKings’ 12-month price target around $32.

“If we see the long side liking DraftKings more entering into pre-season workouts and the new NFL season, then the long buying may spur even more short covering, which would accelerate upward price moves,” Ihor Dusaniwsky, managing director of Predictive Analytics at S3 Partners LLC, told Sports Handle in early July.

Moving forward, DraftKings, which maintains a 105,000-square-foot headquarters in Boston’s Back Bay neighborhood, could be bolstered by the legalization of sports betting in Massachusetts. On Monday, a legislative sports betting conference committee reached a consensus on a college carve-out, enabling the legislature to send a bill onto Gov. Charlie Baker’s desk.

Exciting news for the Commonwealth and a big win for sports fans. This is a huge opportunity for @DraftKings and the 1,300+ employees we have living in MA – can't wait to finally launch DK Sportsbook in our backyard. https://t.co/A2iinCR0rj

— Jason Robins (@JasonDRobins) August 1, 2022

Flutter EntertainmentΒ (FLTR.L)

Opening price on July 1: Β£8,248 pence

Closing price on July 29: Β£8,228 pence

Monthly percent gained or lost: (-0.01%)

Year-to-date change: Β£11,750 pence

Market cap: $15.2 billion (as of Aug. 4)

Flutter Entertainment, the parent company of FanDuel, is scheduled to report 2022 interim results on Aug. 12. Prior to the earnings call, FanDuel announced several leadership changes.

On Wednesday, FanDuel promoted Andrew Sneyd to executive vice president of marketing, two days after the company appointed Carolyn Renzin to the position of chief legal officer. Renzin previously served as the company’s chief risk and compliance officer and will continue in the latter position in her expanded role.

“In her time at FanDuel, she has led transformative change for our business in building out a regulatory and compliance function befitting the current and future scale of our company,” said Christian Genetski, who serves as president of FanDuel Group. “I’m confident she is the right choice to lead our high-performing legal team going forward.”

There are also indications that FanDuel is on the verge of rebranding horse racing network TVG as FanDuel TV, according to multiple media reports.

MGM Resorts (MGM)

Opening price on July 1: $28.82

Closing price on July 29: $32.93

Monthly percent gained or lost: 14.3%

Year-to-date change: (-28.8%)

Market cap: $15.1 billion (as of Aug. 4)

In May, BetMGM maintained a 21% market share in active U.S. online sports betting and iGaming markets, MGM Resorts noted on Wednesday’s call. The figures place BetMGM second among all companies in the marketplace, according to MGM Resorts. BetMGM also maintains a high single-digit market share in Ontario, which went live with online sports betting in April.

“It’s a marketplace that is used to iGaming and sports betting,” MGM Resorts CEO Bill Hornbuckle said on the call. “Our entry has been productive, and we’re pretty excited about where that ultimately all goes.”

MGM Resorts posted quarterly revenue of $3.26 billion, topping analysts’ estimates of $3.04 billion. On the earnings side, MGM missed analysts’ projections, reporting EPS of $0.03 share. Analysts predicted quarterly per-share estimates of $0.24. MGM still rose about 2% in Wednesday’s after-hours session.

Other stock movement

While Caesars increased revenue by about 12% over the second quarter to $2.8 billion, the company’s net losses widened to $123 million for the three-month period ended June 30. Caesars reported net income of $71 million for the same period a year earlier.

Caesars reported a quarterly loss of $0.57 per share, missing analysts’ expectations for earnings of $0.17 per share. The losses were concentrated in Caesars’ digital segment, which contains the company’s online sports betting and iGaming divisions. Caesars Digital reported an adjusted EBITDA loss of $69 million for the period, compared with adjusted EBITDA of $2 million for the same period in 2021.

Following Tuesday’s earnings release, shares of Caesars Entertainment fell 2% in the after-hours session. Caesars later erased the losses in Wednesday’s session, closing the day at $49.26 a share.

Despite the swelling losses from its digital business, Caesars maintains that it continues to rein in marketing spending after pulling a glitzy advertising campaign featuring the Manning brothers and actor J.B. Smoove in February. The company is making strides in increasing “unaided brand awareness,” allowing it to scale back on marketing spending, according to Eric Hession, co-president of Caesars’ sports and online gaming division. Still, analysts are keeping a close eye on the metrics after Caesars’ digital division racked up $692 million in net losses over the first half of the year.

"Sports Betting News: Caesars Turns Focus To Sportsbook Upgrades After Slashing Ad Spend #News": https://t.co/eoDNalDbwa

— Global News Report (@robinsnewswire) August 4, 2022

PointsBet reported a total U.S. net win for the quarter of $74.1 million in Australian dollars, an 81% gain over the previous year’s period. On the Australian Stock Exchange, PointsBet rose nearly 15% on the month.

On Thursday’s quarterly earnings call, Penn National Gaming garnered headlines when it officially rebranded to PENN Entertainment. The company posted revenue of $1.63 billion, an increase of 5.3% from last year’s second quarter. But PENN Entertainment also reported second-quarter earnings per share of $0.15, missing analysts’ estimates by $0.35.

“Our new name maintains ties to our legacy while better reflecting our evolution into North America’s leading provider of integrated entertainment, sports content and casino gaming experiences,” PENN Entertainment CEO Jay Snowden said in a statement.

PENN Entertainment remained relatively flat on Thursday afternoon, trading at $36.50, down 0.25% on the session. The company is still up nearly 9% over the last month.

Among sports betting data providers, Genius jumped 15% to $2.59 a share, while Sportradar surged 18% to $9.61. Both global providers are still down more than 60% from their respective 52-week highs. Genius is scheduled to report second-quarter earnings on Aug. 16, one day before Sportradar.

TheΒ Roundhill Sports Betting & iGaming ETF (BETZ), an exchange-traded fund (ETF)Β  that tracks the top sports betting and iGaming stocks in the industry, closed July at $15.66, up about 8.7% on the month. The ETF rallied over the final weeks of the month after slumping to $13.77, an all-time low. BETZ hit a record high of $32.65 back in April 2021, reaching a level that more than doubled its June 2020 debut.

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Matt Rybaltowski

Matt Rybaltowski

Matt is a veteran writer with a specific focus on the emerging sports gambling market. During Matt's two decade career in journalism, he has written for the New York Times, Forbes, The Guardian, Reuters and CBSSports.com among others. In his spare time, Matt is an avid reader, a weekend tennis player and a frequent embarrassment to the sport of running. Contact Matt at [email protected]

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