Morgan Stanley Optimistic about DraftKings’ Stock Despite Short-Term Losses

A recent Morgan Stanley analyst note is bullish on the potential of the DraftKings stock as gaming shares are a hotly debated topic in investment circles. Some have advised that more consolidation of the sector would be needed before any real gains can be realized. Yet, the outlook from Morgan Stanley for the fantasy and sports betting platform is reassuring.

Long-Term Gains Despite Short-Term Losses

In his note, Thomas Allen, an analyst with the brokerage, says that the company expects the US iGaming and betting market to be of significant value to its customers, with DKNG one of the winners:

“We expect the US online sports betting/iGaming market to be very large, with a few market share winners, including DKNG.”

Morgan Stanley analyst Thomas Allen

Allen has confirmed the overweight status of stock and argued that it’s headed for a steady increase moving forward. However, costs remain a lingering reason for concern as many investors are still skittish and would need to wait as DraftKings fights for market share, which has bitten into its most recent results as well.

Profitability is some way off, but unlike a streaming giant, DraftKings is determined to bring home the bacon. Jason Robins, DraftKings’ chief executive, has openly stated that the company is looking for casual gamblers and not “sharps” and it would be adjusting its product accordingly.

Allen acknowledges that DraftKings will continue to amass losses due to aggressive marketing and as it moves forward into new markets and verticals. However, this should come to an end sooner or later, the analyst says.

Some Main Assets Are Yet to Kick In

 In fact, Morgan Stanley’s team expects long-term profitability to greatly exceed any losses incurred in the short term:

“Public international stocks show that sports betting/iGaming is a profitable business, while past precedents show that stocks that can transition from revenue to profit stories deliver significant upside.”

Morgan Stanley analyst Thomas Allen

DraftKings still has numerous markets to join and while it has had to pay an increasing price to maintain operations, it will still be able to reap even greater benefits when some of its most important tranches are complete. This includes the acquisition of Golden Nugget Online Gaming, which has incurred legal scrutiny.

Meanwhile, DraftKings is also preparing to enter several important markets that should allow it to further grow its profitability with entries in Ohio and Maryland in the United States and Ontario in Canada still pending. This optimistic outlook for DKNG comes in the midst of the company’s plans to further increase its market footprint in 2022.

Morgan Stanley has been historically known to support DraftKings, our correspondent Julie Moraine wrote in January. As the company continues to grow its clout in North American iGaming and betting, the stock may indeed present some long-term opportunities.