DraftKings Analysts On Share Offering, Marketing Costs, Sports Betting Legalization

Analysts defending the DraftKings Inc DKNG share offering and the company's high marketing costs.

DraftKings has lower customer acquisition costs than in the prior year, and additional state legalization in the online sports betting market in its favor, the analysts said.

The DraftKings Share Offering: DraftKings held a 32-million-share offering last week.

The offering included the sale of 16 million new shares and 16 million from existing shareholders. Shares were priced at $52 for the offering.

Oppenheimer analyst Jed Kelly said DraftKings can now be aggressive with customer acquisition costs thanks to the share offering.

Kelly has an Outperform rating and raised the price target on DraftKings from $55 to $65. 

Related Link: Understanding DraftKing’s Unusual Options Activity

State-By-State Legalization: The upcoming launch of online sports betting in some states and the possibility of additional states legalizing is seen as a positive for DraftKings.

“We think online sports betting and iGaming coming unlocked in new states are a rising tide for the industry,” Needham analyst Brad Erickson said in a note.

Erickson has a Buy rating on the stock and a $70 price target. 

Credit Suisse analyst Benjamin Chaiken said the acceleration of legalization could power DraftKings shares higher, as the company is a pure play on the online sports betting market.

Chaiken initiated coverage of DraftKings with an Outperform rating and $76 price target.  

Chaiken named California, Texas and Florida as three states that could provide upside if they legalize sports betting.

Credit Suisse's price target for DraftKings in the event of legalization in California is $100.

DraftKings Customer Acquisition: The pre-release of DraftKings' third-quarter earnings showed high customer acquisition costs, said Needham's Erickson. 

Bears will argue the high marketing spends reflect strong competition, but Erickson said the customer acquisition costs were 50% to 55% lower from levels that Needham estimated for DraftKings in New Jersey last year.

DKNG Price Action: Shares of DraftKings were up 3.65% at $50.60 at the close Monday.