Sports betting is hugely popular with young people. Bleacher Report, a subsidiary of ATT's Warner Media, estimates that one in three millennials sports fans bet. And sports betting companies Penn National Gaming (PENN 4.92%) and DraftKings (DKNG 2.97%) rank high on millennial-friendly Robinhood's list of its top 100 stocks. Let's explore the reasons these companies could make great investments.
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Penn National Gaming
Penn National Gaming is a casino and horse race track operator that is expanding into sports betting and online gambling. While the company still faces near-term challenges from the coronavirus pandemic lowering visitor traffic to traditional casinos, its long-term outlook remains strong. The sports betting industry is poised for growth as state legalization efforts ramp up. And Penn National can boost its competitive moat by integrating the recently-acquired digital media community, Barstool sports, into its operations.
States have seen a drop in tax revenue during the pandemic, which could incentivize lawmakers to legalize vice industries like online sports betting. With legalization efforts boosting the outlook for the industry, Penn National is developing a customer acquisition strategy that could put it ahead of its rivals.
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In February, the company acquired a 36% interest in Barstool Sports worth $163 million. This partnership gives Penn National access to Barstool's audience of 66 million monthly active users (MAUs). These visitors skew young and are highly-targeted, with 44% betting at least once a week, according to internal company data.
Penn National began rolling out its sports betting app Barstool Sportsbook in the third quarter, and investors can expect more color on its performance when earnings go live on Oct. 29. Penn National expects to generate revenue of up to $1.15 billion, which would be down 11% year over year and EBITDAR of up to $450 million, which would be an increase of 18% over the prior year period. This guidance suggests the company has recovered from the worst impacts of the coronavirus pandemic and is poised to execute on its pivot towards sports betting.
Draftkings
DraftKings is another sports-betting stock that looks positioned for success as the industry expands. Unlike Penn National Gaming, which boasts a significant physical footprint, Draftkings uses a more digital-focused business model that could help shield it from the impacts of the coronavirus pandemic. The company can capture market share from its rivals through its exclusive partnerships with major sports media networks.
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Most live sports are back from their coronavirus-driven hiatus, and that's welcome news for DraftKings. The company expects third-quarter revenue of up to $133 million, which would represent an increase of 97% over the prior-year period.
The growth comes as DraftKings launched its standalone casino app in Pennsylvania and New Jersey and rolls out retail and online sports betting in Illinois.
DraftKings plans to drive brand recognition and customer acquisition through exclusive partnerships. In October, the company inked a deal with AT&T's Turner Sports for exclusive rights to present sports betting content on the broadcaster's digital channels. This partnership follows an earlier agreement with Disney's ESPN to provide sportsbook content. Turner Sports and ESPN are two of the biggest names in sports media, and both deals will potentially boost DraftKings' profile and connect more viewers to its products and services.
Which is better for your portfolio?
DraftKings and Penn National Gaming have both developed compelling strategies to capture market share in the sports betting industry. DraftKings' digital business model could protect it from the worst impacts of the coronavirus pandemic, while Penn National's large physical footprint can provide it with diversified revenue streams as it seeks growth in the sports betting market.
