JMP sees U.S. gaming market as competitive moat for DraftKings

On Monday, JMP Securities provided insights from the ICE Barcelona conference, where analysts observed the evolving dynamics in the gaming industry. The conference, known as the largest annual gathering in the gaming sector, revealed a decline in interest among international companies seeking to enter the U.S. market. This shift is attributed to the concentration of U.S. online market share among operators with their own technology platforms and a lack of progress in iGaming legalization. According to InvestingPro data, the gaming sector's leading players are showing robust growth, with Flutter Entertainment reporting impressive revenue growth of nearly 20% in the last twelve months.

The U.S. market, on track to become the world's largest online gambling arena, is effectively insulated by a competitive moat, according to the analyst's observations. This environment is particularly favorable for leading companies like FanDuel and DraftKings (NASDAQ:DKNG), which are expected to benefit from the current market conditions. Flutter Entertainment, FanDuel's parent company, has demonstrated this strength with a market capitalization of $46.64 billion and a strong price momentum score of 3.98 on InvestingPro's financial health metrics. DraftKings, with a maintained price target of $50, is among the firms poised to capitalize on the situation.

The analyst highlighted the substantial free cash flow that companies such as DraftKings, FanDuel/Flutter, and Hard Rock are on the verge of generating. Flutter's financial metrics support this view, with InvestingPro showing the company generated $1.17 billion in levered free cash flow in the last twelve months. This financial strength is anticipated to provide these companies with the resources needed to pursue international expansion through mergers and acquisitions, using the cash flow from U.S. operations as a funding source.

The analysis pointed to Flutter Entertainment's strategy of leveraging scale to drive growth through acquisitions, citing examples like the Snaitech and NSX Group deals. This approach is expected to serve as a playbook for other companies aiming to expand their global footprint in the gaming industry.

Overall, the insights from ICE Barcelona underscore the strategic positioning of top market share companies in the U.S. gaming sector. With a competitive edge in their home market and the potential for international growth, these firms are well-placed to navigate the industry's future landscape.

In other recent news, Flutter Entertainment faced a series of significant developments. The company reported a substantial $438 million hit to its Gross Gaming Revenue (GGR) due to unfavorable NFL outcomes, leading to downward revisions in its 2024 US revenue projections and Adjusted EBITDA expectations. In response to these developments, Susquehanna maintained a positive rating on Flutter Entertainment but reduced its price target from $322.00 to $317.00, while Benchmark analysts maintained a Buy rating.

Additionally, Flutter and DraftKings face potential tax increases in Maryland, as the state's newly proposed budget aims to increase sports wagering and table game tax rates. This could affect the operational costs of both companies. Stifel initiated Flutter with a Buy rating, citing the company's attractive valuation and potential for positive catalysts. The firm also predicted robust free cash flow growth for Flutter, with an estimated compound annual growth rate of about 56% from 2024 to 2027.

These are the recent developments that have occurred, offering a snapshot of the company's current situation. It is important to note that the information presented is based on the facts available and does not include personal opinions or predictions.

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