Investors can consider putting more stock in DraftKings’ Wall Street future

Jay Dieffenbach

Two extremely popular forms of gambling – online sports betting and Wall Street prognostication -have joined to provide potential investors a real value play.

Among the leading online sportsbooks, DraftKings has brought key technology in house having acquired SBTech in its merger with Diamond Eagle Acquisition Group – and is drawing the attention of stock market speculation.

Just a week ago, the company’s partnership with SBTech was attacked by an analysis that claimed SBTech’s unsavory past should bring slap a major downgrade.

But this week, investors and analysts have served to steady the waters following the Hindenburg Research’s rough critique.

Backtracking a moment to restate Hindenburg’s reasoning

The analysis claimed SBTech is involved – globally — in illegal gambling activities.

Citing sources including former employees of SBTech, it stated up to 50 percent of the company revenue is a result of illicit ops.

Additionally, it charges SBTech allegedly does some of its operating in Iran. And that would be a violation because the Iran government has been identified as one which is a state sponsor of global terrorism — and U.S. companies are prohibited from conducting business there.

DraftKings responded with a statement addressing the allegations: "This report is written by someone who is short on DraftKings stock with an incentive to drive down the share price. Our business combination with SBTech was completed in 2020. We conducted a thorough review of their business practices and we were comfortable with the findings."

A commentary by the Motley Fool online, took a microscope to the response:

It's those last words that investors need to parse. Rather than a definitive denial that Hindenburg's report is true, it instead hints that DraftKings management investigated those "business practices" and doesn't believe they will materially impact its operations. That's hardly a stinging rebuke.

But many analysts believe DraftKings isn’t too concerned about SBTech’s moneymaking abilities; rather it’s primary focus is on the tech.

And, the Motley Fool story states, “Another problem is sourcing, as many of the most serious allegations made against DraftKings are leveled by supposed former employees who have been granted anonymity.

“Assuming they exist, they may have ulterior motives for making the charges.”

The service upside to the DraftKings move with SBTech

Boston-based DraftKings was founded by Jason Robins, Matt Kalish and Paul Liberman in 2011. In the wake of the 2018 U.S. Supreme Court decision lifting the ban on single-event sports wagering, the company started its first legal sportsbook from New Jersey in August that year, becoming the first online sportsbook operator in the U.S. outside the state of Nevada.

Today, creativity is perhaps more important than ever.

Mobile sports betting operators, chasing the seemingly unlimited potential for profit in the quickly evolving gambling industry, are adjusting and improving their product regularly.

The move by DraftKings is expected to provide customers with even more options among its betting services including a stepped-up presence involving Same Game Parlay betting.

Having SBTech in house may give DraftKings more freedom to create a unique platform with enticing features unavailable to competitors who are still employing third parties.

That technological advantage should please the company’s faithful customers and lead to a rise in the company’s stock market fortunes, even though the updates may not be in place until later this summer.

According to TipRanks, via Yahoo!Finance, Wall Street investors should seriously consider jumping aboard the DraftKings bandwagon.

Four-star analyst Jed Kelly of Oppenheimer & Co. covered the stock, detailing the announcement made by the online sports betting company. He wrote that the migration of the platform to SBTech from the Kambi Group (KMBIF) will provide DraftKings with the opportunity to operate new betting services, most notably one called Same Game Parlays (SGP). This form of sports betting has gained in popularity as of late.

Kelly assigned a Buy rating on the stock, and provided a price target of $80. This reflects a potential 66.46% upside from the Friday closing price of $48.06.

DraftKings shares closed on Tuesday at more than $50.16.

Same Game Parlays (SGPs) are a rare bird: a new wrinkle to be implemented by online sportsbooks.

SGPs undoubtedly will boost revenues and yields.

Kelly, the Oppenheimer analyst, said DraftKings now is in position to “close the yield gap with its peers,” in turn creating more stock upside late this year.

A consensus on the Wall Street part of the gambling story seems to have been reached.

The TipRanks rating this week says “Strong Buy,” having reported 16 “Buy” and four “Hold” ratings.

While investors should be wary of the breathless $80 predictions for DraftKings stock target, the Motley Fool story said the bookmakers’ average analyst price target is $69.38.

DraftKings and Diamond Eagle (with SBTech) announced their merger deal in December 2019 and completed the combination in April 2020. The debut on the NASDAQ was April 24, 2020, and the stock is up more than 150 percent since the deal was finalized.

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