March is an excellent time of the year for sports fans. Several big events are in motion, including the college basketball tournament known as March Madness.
Wagering on the action has become a big hobby; according to research by The Motley Fool, the amount of money bet on sports surpassed $104 billion in 2023. That figure was just $4.6 billion in 2018, but online betting, made possible after a 2018 Supreme Court ruling, changed the game.
Is betting not your thing? No problem. Consider profiting by investing in the sports betting companies themselves. It's a crowded space, marked by all the ads and commercials you may have seen. But when the dust settles, these two stocks look poised for victory.
1. The early mover is taking market share
DraftKings (DKNG 4.96%) is a daily fantasy sports and betting platform that was one of the earliest entrants into the online U.S. sports betting scene. The company has amassed a 35% market share and is expanding into online casino gaming and lottery. Importantly, DraftKings has brand recognition among sports fans from fantasy sports and can leverage that as more states legalize aspects of betting.
To date, only 38 states plus the District of Columbia have legalized online betting, which still leaves a long runway for new legalization and market penetration as legalization opens up advertising opportunities.
The industry's rapid growth translates swimmingly to DraftKings' operating results. The company hit 3.4 million unique monthly paying customers at the end of Q4, up 37% year over year. Management raised its 2024 revenue guidance to as much as $4.9 billion, a potential 34% bump from last year.
Analysts believe DraftKings will turn profitable in 2025, estimating earnings per share (EPS) of $0.73. From there, earnings should snowball as revenue outpaces expenses (operating leverage). The stock trades at just 57 times 2025 earnings estimates. That should get cheaper quickly as earnings pile up. DraftKings could be a lucrative betting stock if it protects its market share.
2. This entertainment legend is jumping into the game
Walt Disney (DIS -0.04%) is known for its intellectual property in the entertainment industry. Still, its ownership of the ESPN television network means the House of Mouse has long held a prominent leadership role in sports. It took some time, but the company partnered with Penn Entertainment to roll out ESPN Bet, its online sports betting platform aimed at competing with DraftKings, FanDuel, and the other legacy casinos that have also jumped into the online betting scene.
Investors are also getting a diversified media business in Disney, so the stock isn't a pure play on the betting industry. Disney's sports business is part of a broader media empire that includes multiple streaming services, theme parks and cruise lines, and movie studios that continue pumping out new intellectual assets.
Disney's stock has struggled a bit since the pandemic. The company took on debt when it bought media assets from Fox Corporation for $71.3 billion and has taken losses in streaming while focusing on growing its subscriber base.
But the pendulum is now swinging the other way. Disney has begun raising prices to make money on streaming, and profits are rolling in. CEO Bob Iger recently updated investors on the company's performance, noting that Disney is currently trending ahead of cash-flow guidance for this year.
The stock trades at a forward P/E of 24 and analysts believe earnings will grow by an average of 14% annually over the next three to five years. That's a solid setup for long-term investors willing to own the stock for years and let improving profitability in Disney's streaming business carry earnings higher and create shareholder value.
