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Online gambling market leaders rarely get far above a 20% share. Think of Amazon in e-commerce for example.Д«ut in Europe, thatвЂ™s not been the case. In the US, the popular narrative is that DK/FD can build share now, squeeze out rivals, then pump up profit margins later.

вЂњPlus neither are close to generating positive cash flow and thereвЂ™s another 10-15 companies all trying to steal their lunch.вЂќ What a market leader truly looks likeДЄ key here is how the respective markets view gambling companies. вЂњDoesnвЂ™t it just shine a light on the fact that the two market leaders will have equity value in excess of $50 billion while industry net gaming revenues are only just north of $20 billion in 2025?вЂќ вЂњIвЂ™m not sure itвЂ™s the wisest move by Flutter,вЂќ French said. Indeed, Simon French, the co-founder of advisory firm Bixteth Partners, warned a FanDuel IPO could help burst that aforementioned bubble. In that case, there might be less upside to listing FanDuel stock in the US. In other words, if the DraftKings valuation is not accurate, a potential $40 billion mark on Flutter might be as well. вЂњWe can certainly see the appeal of a US IPO in the short term, but our key concern is that DK may be overvalued and therefore FLTR would arguably be chasing a short-term bubble,вЂќ Stuber said. ThatвЂ™s based upon a 30% share of a $20 billion TAM in 2025, with a 15x multiple on 30% EBITDA margins.

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But they thereвЂ™s no such thing as a free lunch and Flutter might face some issues ahead.ДЇor starters, Numis Securities analyst Richard Stuber noted his own valuation for FanDuel was a more conservative $18.4 billion. Then Fox will have to pay Flutter a lot more for the stake. If FanDuel is publicly traded, however, the valuation for that deal could be be up to $40 billion as calculated above. The deal valued FanDuel at $11.2 billion. In a recent earnings call, Fox said that value had been determined by a December transaction where Flutter upped its stake in FanDuel to 95%. Pump up the value of FanDuel stock?Д®lsewhere, a US IPO could make Flutter some extra cash from Fox.ДЄs Peel Hunt analyst Ivor Jones wrote this month, Fox is entitled to buy 18.6% of FanDuel from Flutter in July 2021 based on вЂњfair market value.вЂќ That said, FanDuel has less need to raise cash than DraftKings, as the Flutter global business is so cash-generative. Those notes can be repaid in stock, and if DK trades at a higher multiple, it essentially has cheaper access to capital. London-based analyst Jefferies also argued that not equalizing the valuation against DraftKings could be a competitive disadvantage.ДЇor example, DraftKings recently raised another $1 billion in cash via senior convertible notes.

вЂњWe believe that even a small shareholding list of the FanDuel business in the US could help crystallize the value of the US business, boosting FlutterвЂ™s overall valuation.вЂќ Competing on equal footing with DraftKings In other words, Flutter could be sitting on a $40 billion asset not being valued as such because it is listed in the UK and attached to the rest of the business.ДЄs Bank of America put it in a note to clients on Monday: That includes FanDuel and a global gambling business that generated more than $1.4 billion in EBITDA last year. Today, $40 billion is the current valuation for the entire Flutter business. So if it were to trade on the same multiple as DraftKings, FanDuel would be worth around $40 billion. Meanwhile, FanDuel Group is projected for circa 30% more revenue than DK in FY2021.

Flutter Entertainment confirmed this month it could potentially consider an IPO of a portion of its FanDuel stake in the US.ДЇlutter, which owns 95% of FanDuel, saw its stock jump 7% on the news.Д«ut is it actually a good idea? Unrecognized value in FanDuelДЇirst, the upside for Flutter: a nalysts are near unanimous that FanDuel is undervalued compared to DraftKings.Д¬onsider that DraftKings is trading at 27x FY21 sales for a $28.5 billion valuation.

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