We recently compiled a list of the 10 Best Entertainment Stocks To Buy According to Analysts. In this article, we are going to take a look at where DraftKings Inc. (NASDAQ:DKNG) stands against the other best entertainment stocks to buy according to analysts.
An Overview of the Entertainment Industry
According to a report by The Business Research Company, the international entertainment and media industry was valued at $2.51 trillion in 2023. It is expected to grow at a compound annual growth rate (CAGR) of 7% to reach $3.55 trillion by 2028. Growth in the entertainment industry is driven by the rapid adoption of subscription models, the evolution of live events, and the use of augmented and virtual reality technologies.
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A report published by FTI Delta earlier this year highlighted some significant trends and challenges in the media and entertainment industry. As per the report, the live entertainment sector has experienced a robust recovery, with global spending on live music in 2023 increasing by 49% compared to 2019. Major sports leagues, including the NFL, NBA, MLS, NHL, and IndyCar, have not only recovered but surpassed pre-pandemic attendance levels. The post-pandemic recovery within the industry has not been uniform. For instance, the filmed entertainment industry faced severe challenges in late 2023 due to strikes by the Writers Guild of America (WGA) and SAG-AFTRA. These disruptions led to a more than 70% decline in production and marketing expenditures, compounding existing issues from early 2023 when studios were already tightening budgets. As a result, spending in 2023 was down approximately 35% from 2022, reflecting a struggling market. The report anticipates recovery for filmed entertainment post-strike to be more subdued than previous rebounds, with projections of about 25% year-over-year growth in 2024.
On the bright side, the report highlighted a significant growth trajectory for United States TV and connected TV (CTV) advertising, emphasizing the transformative impact of CTV on the advertising landscape. The combined US TV and CTV ad spending is projected to approach $100 billion by 2027, with CTV being the primary driver of this growth. In 2024 alone, CTV advertising is expected to increase by $5.5 billion, representing a 22% year-over-year growth. The surge in CTV advertising is largely attributed to the rise of premium ad-supported streaming services.
In addition to a robust performance expected within the advertising segment, the gaming sector remains resilient. The video game industry achieved a CAGR of 9.2% from 2019 to 2022. Despite a 6.3% decline from the peak surge during the COVID-19 pandemic, console sales in 2022 remained 18% higher than pre-pandemic levels, indicating strong ongoing demand for gaming hardware. As per the report, the overall outlook for the video game market remains positive, with expectations of above mid-single-digit growth throughout the next year.
Our Methodology
To compile the list of the 10 best entertainment stocks to buy according to analysts, we used the Finviz stock screener and our previous articles. Using these two sources we aggregated an initial list of entertainment stocks sorted by their market capitalization. Next, we checked analysts’ upside potential for each stock and shortlisted stocks with an analyst upside potential of at least 25%. Lastly, we ranked our stocks in ascending order of the analysts’ upside potential. We have also added the number of hedge funds holding each stock sourced from Insider Monkey’s Q3 2024 database. Please note that the data was collected on December 13, 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
DraftKings Inc. (NASDAQ:DKNG)
Analysts’ Upside Potential: 32.90%
Number of Hedge Funds: 54
DraftKings Inc. (NASDAQ:DKNG) is a digital sports entertainment and gaming company that offers various online services. It is known for its Sportsbook and Daily Fantasy Sports platforms. Using the Sportsbook, users can place bets on the outcomes of sporting events through its mobile app and website. Whereas, the Daily Fantasy Sports platform allows users to create fantasy teams made up of real players from various sports leagues and compete based on the performance of actual players.
The company has been growing its unique customer count on its platforms while maintaining the Customer Acquisition Cost (CAC). Its newly acquired customers on sportsbook and iGaming platforms increased 14% year-over-year, with CAC improving 20% during the same time. As a result, the online sportsbook handle and gross gaming revenue increased 25% and 39% year-over-year, respectively.
Moreover, DraftKings Inc. (NASDAQ:DKNG) has been busy improving its customer engagement. This fall, management launched new and exclusive NBA betting markets aimed at engaging customers with significant game storylines. This initiative is designed to attract more users by making betting more relevant to the ongoing narratives in the league. In addition, it has also expanded its in-house Same Game Parlay feature, adding over 50 new NBA markets. Management also has plans to launch its sportsbook product in Missouri, where sports betting has recently been legalized. Missouri represents about 2% of the U.S. population, providing a substantial opportunity for growth.
Alger Spectra Fund stated the following regarding DraftKings Inc. (NASDAQ:DKNG) in its Q2 2024 investor letter:
“DraftKings Inc. (NASDAQ:DKNG) is a digital sports entertainment and gaming firm designed to ignite the passion of sports enthusiasts through a diverse offering that spans daily fantasy, regulated gaming, and digital media. We believe the company’s expertise in product development and customer acquisition, which established it as the market leader in daily fantasy sports (DFS), positions DraftKings to be a key driver in advancing the U.S. sports betting market’s growth. The company reported strong fiscal first quarter results, with revenues beating analyst estimates due to broad-based momentum in customer engagement and acquisition. However, on May 28th, the Illinois Senate passed a new state budget that includes a tiered progressive tax on sportsbook operators, effective July 1, 2024. This new tax ranges from 20% to 40% on gross revenues, a significant increase from the current 15% tax rate. Despite management’s belief that it can mitigate the tax impact by reducing promotions in Illinois, this development negatively affected the company’s share price.”
Overall, DKNG ranks 8th on our list of best entertainment stocks to buy according to analysts. While we acknowledge the potential of DKNG to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DKNG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.