Fox Has Sports Betting Optionality that Could Drive Shares Higher
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Posted on: March 30, 2021, 09:26h.
Last updated on: March 30, 2021, 11:44h.
Fox Corp. (NASDAQ:FOXA) is a $23 billion broadcasting behemoth, but investors shouldn’t sleep on the company’s sports betting footprint.
That’s the sentiment of Barclays analyst Kannan Venkateshwar, who on Monday lifted his price target on the stock to $38 from $29 while reiterating an “equal weight” rating. Through its stake in Flutter Entertainment (OTC:PDYPY), Fox has “significant optionality” in online casinos and sports betting, says the analyst.
Citing disclosures from sports betting companies, Venkateshwar adds the industry’s unit economics aren’t attractive today. But that will change as the total addressable market expands and costs normalize.
The analyst estimates the US sports betting market could be worth $30 billion to $40 billion by 2030. Even at the midpoint of that range, it’s one of the more bullish forecasts. Goldman Sachs recently said that segment could vault to $39 billion by 2033, assuming a compound annual growth rate (CAGR) of 40 percent for over a decade.
Earlier this month, DraftKings (NASDAQ:DKNG) said it believes the US online sports wagering market could be worth $22 billion in a few years, assuming 100 percent legalization.
Feathers in Fox Sports Betting Cap
Fox previously had strong sports betting exposure outside the US through its ownership of Sky Bet, which the media company sold to The Stars Group (TSG) in 2018 for $4.7 billion.
Through its relationship with TSG, Fox was able to keep its toes in the sports wagering waters, later forming FOX Bet. That partnership paid off last year when Flutter doled out $12.2 billion for TSG, creating the world’s largest online gaming company. By way of that transaction, Fox gained a 2.5 percent stake in Flutter, making it one of the Irish gaming operator’s biggest investors.
Via its Flutter investment, Fox controls a significant portion of FanDuel, the largest online sportsbook in the US — a stake the media company intends to increase this year.
There’s increasing chatter that Flutter will spin-off FanDuel to create value for shareholders, but Venkateshwa believes the operator won’t willfully jeopardize its relationship with Fox.
“We think Flutter is unlikely to compromise its relationship with its most important US partner strategically over this issue,” said the analyst.
He estimates FanDuel and FOX Bet are worth $5.50 to Fox’s share price.
Other Moves for Fox
Fox is also reportedly interested in the media and sports betting units of Australia’s Tabcorp. That company is in the process of strategically reviewing those assets.
At the end of 2020, Fox had $4.64 billion in cash on hand. That could perhaps be enough for it to acquire a number of smaller sports betting outfits, some of which also have media exposure.
In a FanDuel spin-off scenario, assuming the unit is valued on par with DraftKings’ (NASDAQ:DKNG) current market capitalization, Fox’s 18.5 percent stake in that business would be worth $4.44 billion.
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