Goldman Sachs analyst Ben Andrews is out with a new report on the state of the sports betting sector.
March online sports betting data points to the industry being softer, Andrews wrote, citing 7% year-over-year growth compared to 17% year-over-year growth in February.
The key leaders in the industry include FanDuel, which is owned by Flutter Entertainment (NYSE:FLUT), DraftKings Inc (NASDAQ:DKNG) and BetMGM, a joint venture from Entain ADR (OTC:GMVHY) and MGM Resorts International (NYSE:MGM).
FanDuel and BetMGM saw gains in March, while DraftKings saw a lower share, he said.
"Together, the two market leaders – Flutter and DraftKings – hold 80% GGR market share YTD in OSB," Andrews said.
FanDuel continues to be well ahead of competitors and has extended the gap with DraftKings over the last four months.
"Flutter's GGR win margins continue to be ahead of its competitors in the states we track, indicative of better monetization and product mix."
Andrews said most investors see a duopoly or oligopoly in most states for online sports betting. The analyst said BetMGM has improved online sports betting market share but there "remains a significant gap" between third place and the top two operators.
Fanatics and ESPN Bet, which comes from PENN Entertainment (NASDAQ:PENN), are new entrants in the sports betting market. They present a risk to BetMGM, Andrews says.
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Goldman Sachs recently initiated coverage on DraftKings with a Buy rating and a $60 price target.
According to Andrews, DraftKings could benefit from online gaming expansion and improved unit economics. Also, strong free cash flow allows for investment options and the company may consider returning capital to shareholders.
Goldman Sachs also has a Buy rating on Flutter Entertainment
Flutter's scale, diversification, and leadership positions it to capitalize on key structural growth themes in the sector, Andrews said.
"We believe Flutter's earnings profile is on the cusp of transformation as the profitability of its US division inflects, driving a doubling of group EBITDA over the next three years," he added.
Goldman Sachs has a Sell rating on Entain, which trades on the London Stock Exchange.
"We believe the inflection of Entain's fundamentals will take longer to come through, which led us to lower our estimates materially in November 2023."
The value of BetMGM might not be fully recognized in Entain's share price, Andrews says. A delay in the path to profitability could delay that realization in the near-term.
"Absent external catalysts, we would expect the shares to continue to underperform within our coverage on a 12-month view."