DraftKings 3.0: Analysts Raise Price Targets After Q4 Beat, Focus On Profitability

Sports betting giant DraftKings Inc DKNG beat revenue estimates in the fourth quarter and raised its 2023 guidance. Here's what analysts have to say about the report and the company's path forward.

• JMP Securities analyst Jordan Bender has a Market Outperform rating and a price target of $23.
• Susquehanna analyst Joseph Stauff has a Positive rating and raises the price target from $24 to $26.
• Benchmark analyst Mike Hickey has a Buy rating and raises the price target from $19 to $23.
• Needham analyst Bernie McTernan has a Buy rating and a price target of $20.
• Bank of America analyst Shaun Kelley has a Neutral rating and raises the price target from $16 to $19.

Related Link: Trading Strategies For DraftKings Stock Before And After Q4 Earnings 

JMP Securities

DraftKings bounced back in the fourth quarter with revenue and EBITDA totals that beat analysts’ estimates, Bender explained.

“The beat was supported by favorable hold, but the company is benefitting from structural changes to its business model, leading to higher retention rates and monetization, lower levels of promotions, and market share gains in the quarter,” Bender said.

DraftKings also showed an improved cost structure, announced better guidance and could have eliminated concerns for a need for cash.

“Overall, this is one of DKNG’s best quarters in recent memory.”

Susquehanna

Stauff said DraftKings earnings results showed the company’s model is “scaling to profitability.”

“We think one of the really important 4Q metrics was its +31% user growth and how this sets up into 1H23 with two major state launches,” Stauff said.

The analyst said DraftKings could have helped de-risk the view on profitability from skeptics with the state of Ohio being profitable and improved EBITDA.

Benchmark

Hickey called the results from DraftKings better than expected. The analyst highlighted the company’s improved marketing efficiency, improved costs and updated guidance.

“In most mature states (launched in FY18 and FY19), net revenue increased 50%, adjusted gross margin increased 400bps, and external marketing declined over 15% in FY22,” Hickey said.

The analyst said liquidity concerns are eased with DraftKings ending the fourth quarter with $1.3 billion in cash and plans to exit 2023 with positive cash on the balance sheet before hitting positive adjusted EBITDA in fiscal year 2024.

Needham

McTernan signals that DraftKings may be hitting a new evolution of the company.

“If DKNG 1.0 was started with the launch of daily fantasy, DKNG 2.0 started by the overturn of PASPA, we suspect today could be the launch of DKNG 3.0 with a focus of managing near-term profitability,” McTernan said. PASPA is the Professional and Amateur Sprots Protection Act of 1992, which was overturned in 2018 to allow states to decide sports betting legalization.

The analyst said DraftKings “still has a ways to go” to be valued on near-term profitability metrics.

“We think the increased focus on profitability described in the shareholder letter and exemplified by their 4Q results and updated ‘23E guidance should send a powerful message.”

States that legalized in 2018 and 2019 saw revenue growth in fiscal year 2022 and also had lower marketing costs. The analyst said this is the “blueprint” for how DraftKings can achieve profitability as it scales.

Bank of America

Kelley said the major headlines for DraftKings from the earnings report are the revenue beat and EBITDA outlook improvement, but cautions the forward path.

“While we sense the original range was conservative, it’s still a positive step to see DKNG showing cost leverage on gross margins, discipline on marketing costs and pruning some fixed/personnel costs,” Kelley said. “Still, DKNG remains well behind competitors who are either nearing or/at profitability in 2023.”

DKNG Price Action: DraftKings shares are up 17% to $20.83 on Friday.

Read Next: Exclusive: Why DraftKings Is A Key Holding Of Ark Invest, Stands Out Ahead Of The Sports Bettingn Compettition 
Photo via Shutterstock.