Online sports betting has proven to be a big hit among Americans as more states legalize it. players breaking records at the Super Bowl and March Madness. But one group has so far been more skeptical: investors.
The stock prices of major sports betting companies have fallen despite the rise in betting, which raises questions about how quickly the public’s enthusiasm for online betting will translate into greater profits for online betting. the companies behind all this gambling action.
Over the past 12 months, DraftKings shares have fallen 73% to $ 18.20 on Friday, below the $ 20 they traded when the company went public in April 2020. Flutter Entertainment shares, FanDuel’s parent company, down 47% during this time. while the price of Caesars Entertainment shares is reduced by 5%.
DraftKings reported revenue of $ 1.3 billion and profits of $ 615 million for 2021, while the Flutter division that includes FanDuel reported revenue of $ 1.8 billion and nearly $ 1 billion in profits.
In the short term, the main problem facing sports betting platforms is the large sums that have been spent on advertising and marketing to acquire customers, a common situation for younger companies looking to drive growth by devouring share of market.
Players like DraftKings and FanDuel have spent so aggressively that they have run out of cash, said Daniel Adam, a senior analyst at Loop Capital Markets. In 2021, DraftKings and Flutter spent $ 981 million and $ 875 million, respectively, on marketing, promotions, and advertising, according to regulatory documents.
“That’s really the main factor in the low performance of the stock price,” Adam told CBS MoneyWatch.
Adam remains optimistic about his long-term outlook, though he said the additional revenue could take two to three years to flow. At some point in the future, gambling operators will start spending less on advertising and more money from dedicated customers will come in and boost profits. DraftKings shares are expected to rise to $ 35 per share over the next 12 months, while Caesars may grow to $ 109 per share.
Undoubtedly, the boom in online sports betting will drive the growth of the industry, with Arkansas, Louisiana and New York legalizing it this year. New Yorkers alone placed $ 1.6 billion in online sports betting during the first month of betting, while Arkansas and Louisiana also had lucrative pitches. Thirty states now offer legalized online sports betting.
New Yorkers place $ 1.1 billion in online sports betting
05:19
Betting companies are also listening to Wall Street’s call to control its costs and lay the groundwork for profitability. Caesars Entertainment CEO Tom Reeg said in a earnings call last week that the company is withdrawing advertising. For viewers of television and websites, this would mean seeing fewer sites for the casino and sports betting company’s “We’re All Caesars” campaign, starring actor Jerry Brooks, known as JB Smoove.
“You will see that we drastically reduce our effective traditional media spending immediately,” Reeg said during the call. “We have fulfilled what we set out to do.”
DraftKings also plans to cut its advertising spending in New York and other markets, CEO Jason Robins said during a earnings call last month.
“One of the reasons you see such a fast pace for 100,000 users in recent states like Arizona and New York is because of competitive advertising, ironically,” Robins said. “I think a lot of that is accelerating our ability to launch faster and grow faster, and it could even lead to a faster path to profitability in the states.”
Add Comment