Sports Betting Boon: DraftKings Set To Benefit From Growing Handle And Margin Expansion, Analyst Says

Needham analyst Bernie McTernan reiterated a Buy rating on the shares of DraftKings Inc. DKNG with a price target of $28.
The analyst noted that the company would benefit from higher revenue generated from the growing handle, higher hold, and lower promotions, all of which carry different incremental margins.
Each incremental dollar of revenue generated from handle growth has a 50% incremental margin.
DraftKings will lead the emerging North American online gambling market, representing a $35 billion market opportunity.
The company's sustainable customer acquisition strategy, benefits of national marketing, and terminal market access penetration should continue to drive its first- or second-place position in all states.
The analyst expects a 50%, 60%, and 95% incremental margin on revenue driven by the handle, gross gaming revenue, and net gaming revenue, respectively. This results in a 32% compound annual revenue growth rate through the fiscal year 2025 and a 37% gross profit CAGR.
The company can grow gross margins by 500-600 bps in aggregate from the fiscal year 2023 to 2025. This improvement and lower sales and marketing expenses can drive the adjusted EBITDA estimate to $600 million in the fiscal year 2025.
Through fiscal year 2025, the analyst forecasts 19% handle growth per year from fiscal year 2023, resulting in a two-year net gaming revenue CAGR of 29%.
Price Action: DKNG shares are trading higher by 0.66% at $18.28 on the last check Monday.

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