Over the past several years, American sports betting has grown from a tiny market to a big business. A combination of looser legal restrictions and online bookmakers has allowed more Americans to place bets on their favorite sports than ever before.
This market is dominated by two such bookmakers, FanDuel and DraftKings, which boast market shares of 45 percent and 32 percent, respectively.
DraftKings is publicly traded, while FanDuel is a subsidiary of a British public company known as Flutter Entertainment.
As the market for sports betting heats up, which is the better bet between Flutter stock vs Draftkings?
Flutter Entertainment Is a Global Bet On Gambling
Flutter Entertainment (OTC:PDYPY) is a massive sportsbook that operates in the US, UK, Australia, Ireland and other key markets.
According to interim results for the first half of FY2023, the company saw revenue growth of 42 percent year-over-year to 4.81 billion GBP. Net income turned positive, reaching 128 million GBP in the first half.
In the current fiscal year, analysts expect Flutter’s earnings to total the equivalent of $1.62 per share.
Given its market-leading position and the growth that FanDuel could see as more states legalize online wagering, Flutter Entertainment also appears to be trading at a reasonable price. At 28.4 times forward earnings and 3.0 times sales, the stock trades at a modest premium.
Looking at the expected price-to-earnings-growth ratio of 0.57, however, it appears that Flutter may be undervalued based on its near-term growth potential.
Over the next 3 to 5 years, analysts expect Flutter’s earnings to continue growing at a compounded annual rate of 49.7 percent. Much of this growth will likely be driven by FanDuel in the US, which was a key contributor to the rising revenues seen in the first half of 2023.
Flutter’s US business also became profitable for the first time earlier this year, positioning it as a key driver of future earnings growth.
For all of its appealing qualities, though, Flutter Entertainment may be in for a period of modest share price growth. Analysts predict a 12-month average price target of $87.98, which is just 8.3 percent above the most recent price of $81.22.
Assuming Flutter hits its high forward earnings growth targets, the stock should enjoy years of steady, respectable gains.
Finally, it’s worth noting that Flutter is about to become much more accessible to US investors. The company is planning a US listing late in 2023 or early in 2024. While this will not affect the intrinsic value of the company, it will make it significantly easier for American investors to buy Flutter shares through standard brokerage accounts.
On the surface, sports betting giant DraftKings (NASDAQ:DKNG) appears to offer much less value than Flutter Entertainment.
At 11.3 times sales, DraftKings trades at a massive premium for a company that has lost $1.38 billion over the past 12 months.
The company’s net margin during the same period has been -38.9 percent, showing just how far the company has to go before achieving profitability.
The argument in favor of DraftKings, however, centers around its widening moat and potential for future growth. Analysts from JPMorgan, for example, recently cited the decrease in customer acquisition costs as DraftKings scales up as one of several bullish arguments for the stock.
It should be noted, however, that the same reasoning could easily be applied to Flutter Entertainment’s FanDuel platform.
The high-growth bull view is partially supported by DraftKings’ recent financial results. In Q2, revenue rose 88 percent year-over-year to $875 million.
Unique monthly users of the betting platform rose 44 percent to 2.1 million, while the average revenue per user jumped 33 percent to $137.
In the upcoming year, analysts project that DraftKings will narrow its losses from $1.62 per share to $0.51 per share. This move in the direction of profitability could support higher share prices, especially if the company continues to add users at a rapid pace.
The average target price for DraftKings over the coming 12 months stands at $36.60, a gain of 24.3 percent from the most recent price of $29.44.
DraftKings also maintains a cash reserve of $1.11 billion, giving it a decent stockpile to fund future growth efforts.
It’s also important to consider, however, that DraftKings has already relied heavily on debt to finance its expansion. The company’s debt-to-equity ratio is currently 1.24, more than double the 0.54 ratio of Flutter Entertainment.
Which Sports Betting Stock Is Best?
While the growth opportunities at DraftKings are quite appealing, Flutter Entertainment appears to offer the superior reward-to-risk ratio at the moment. With existing profitability, a larger market share and the same basic growth catalysts as DraftKings, Flutter Entertainment seems to be a better value by most traditional metrics.
It’s worth noting that both of these stocks have the potential to perform quite well over the coming years. Between now and 2027, the online sports betting market in the United States is expected to grow from $7.62 billion to $14.44 billion.
Given that FanDuel and DraftKings hold an effective duopoly on this market, it’s quite likely that both companies will thrive as their addressable market grows.
Because Flutter is already profitable, maintains less debt and trades at a lower premium, however, the stock appears to be a less risky play on this expanding market than DraftKings.
Investors with high risk tolerances may prefer to buy DraftKings for its larger potential returns, though that really would be the more aggressive bet and applicable mostly to speculative traders.
Buying both companies for a combined play on the industry may also be a worthwhile strategy for capturing potential returns from both stocks. In a way it would be similar to Buffett’s approach to buying all four airline stocks. Even if one were to lose market share, the other would likely capture it.
Similarly, Draftkings losses may be Flutter’s gains, and vice versa, so owning the two companies offers attractive upside with potentially less downside risk.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.