In May 2021, Wynn Resorts (NASDAQ: WYNN) announced the public listing of its digital gaming division, Wynn Interactive, through a combination with Austerlitz Acquisition Corporation sometime later this year. The combined company is slated to have an enterprise value of $3.2 billion. Interestingly, Wynn Interactive’s immediate competitor, Draft Kings, has a market capitalization of $23 billion – much higher than Wynn Resorts’ $11 billion. Notably, Wynn Resorts will have a 58% economic interest and 72% voting interest in the combined company. Considering the $45 billion North American sports betting and iGaming total addressable market, and high competitive rivalry, Trefis believes that Wynn stock is a good bet to realize gains before the Wynn Interactive spin-off. We highlight Wynn Resorts’ stock performance with its peers and broader markets in an interactive dashboard analysis, Wynn Resorts Stock Return.
Wynn Resorts and Draft Kings’ revenue trends
Draft Kings’ (NASDAQ: DKNG) growth has been much stronger than Wynn Resorts in the last two years, with DKNG’s revenue expanding at a rate of more than 50% per year from $226 million in 2018 to $614 million in 2020, versus WYNN’s revenue growing at an average rate of 5% per year from $6 billion in 2017 to $6.6 billion in 2019, and declined by 68% to $2 billion in 2020. Per recent filings, Wynn Interactive’s (the digital gaming segment of Wynn Resorts) revenues are likely to expand at a CAGR of 171% from $96 Mil in 2021E to $708 Mil in 2023E.
- Wynn Resorts’ Macau, Vegas, and Boston properties contribute 70%, 25%, and 5% of total revenues, respectively. Before the pandemic, the company’s Macau properties were observing strong growth assisted by tourist numbers and mass-market gaming wagers. With property closures impacting finances, Wynn Resorts launched the WynnBet sports betting application to enter the digital gaming industry.
- Draft Kings’ Online Gaming, Gaming Software, and Other segments contribute 84%, 12%, and 4% of total revenues, respectively. In the past two years, the average monthly unique players (MUP) and average revenue per monthly unique player (ARPMUP) have grown by 47% and 65%, respectively, resulting in strong revenue growth.
[Updated 10/01/2020] – Amid Sports Betting Frenzy, Consider Las Vegas Sands Over Draft Kings?
Draft Kings stock (NASDAQ: DKNG) has been making headlines after the 30% gain this month supported by key factors including the legalization of sports betting, Michael Jordon’s election as a special advisor, and an overall surge in online business due to the pandemic. Currently, Draft Kings’ market capitalization of $19 billion is nearly half of Las Vegas Sands’ $35 billion (Enterprise Value of LVS = $46 billion) despite a low entry barrier in online gaming, and a balance sheet loaded with intangible assets and goodwill. The market is pricing DKNG stock at a P/S multiple of 43 as compared to just 2.6 for Las Vegas Sands. Draft Kings is growing in the sports betting & iGaming space with a total addressable market size of $40 billion in the U.S. and $70 billion globally, and a substantially higher P/S multiple is warranted. However, Trefis believes that Las Vegas Sands stock offers better odds than Draft Kings, supported by 18 months of cash runway and Macau’s mass market gaming’s higher profitability. In this article, we compare Draft Kings with Las Vegas Sands and key financial and growth metrics to highlight the risks & rewards of investing in Draft Kings’ stock.
Sports Betting & iGaming Market Is Likely To Remain A Highly Contested Space
Per DKNG’s analyst presentation, the company’s revenues are expected to expand at a CAGR of 31% from $432 million in 2019 to $700 million by 2021. In 2019, the national sports betting revenue topped $909 million, nearly doubling within a year. Draft Kings expects to achieve a 20-30% share of the $18 billion sports betting market and 10-20% of the $21 billion iGaming market at maturity in the U.S. Thus, the company’s revenues could reach nearly $5 billion in the long run.
Broadly, the U.S. sports betting and iGaming market at maturity is comparable to Macau Gaming Market of $36 billion. In 2019, Las Vegas Sands reported $7 billion of casino revenues from Macau – representing a 20% share of the Macau Gaming Market. With only six concessionaires, the threat of new entrants is substantially low in Macau as compared to the U.S. sports betting & iGaming industry, which is already being contested by prominent names including, Fanduel, bet365, HardRock Café, BetMGM, and William Hill.
Draft Kings P/S multiple to decline with rising top line, but the stock looks overvalued compared to Las Vegas Sands
Considering DKNG’s $5 billion of revenue generating capacity and the current stock price, Draft Kings’ P/S multiple turns out to be 3.6 – much higher than Las Vegas Sands’ current P/S multiple of 2.6. The price-to-sales, or P/S, multiple for a company is higher when sales growth is higher, and it demonstrates the ability to consistently translate those sales to profits. At $3.6 billion of net revenues, Draft Kings expects its EBITDA to reach $1 billion in the next five years – implying an EBITDA margin of 20%. Interestingly, Las Vegas Sands’ EBITDA margin of 38%, supported by 23% of mass-market casino win in Macau, is much higher than Draft Kings’ projected margin – indicating a lower casino win rate in the online betting space. Las Vegas Sands’ stock has declined by 33% since the beginning of the year and the company has 18 months of cash runway to weather the coronavirus crisis. Despite the sports betting frenzy, we believe that Draft Kings’ stock looks pricey as compared to Las Vegas Sands.
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