Zinger Key Points
- Jackpocket is a popular digital lottery services provider available in 17 states covering ~35% of the U.S. population.
- The analyst says DraftKings should continue to benefit from secular tailwinds.
Leading sports betting company DraftKings Inc DKNG was sized up by an analyst in a new note with a look ahead at the impact of the acquisition of digital lottery company Jackpocket.
The DraftKings Analyst: Goldman Sachs analyst Ben Miller has a Buy rating and $60 price target on DraftKings.
Related Link: DraftKings Emerging As A Leader In $35B North American Online Betting Market, Analyst Says
The Analyst Takeaways: Key recent developments like the closing of the Jackpocket acquisition and higher state taxes in Illinois were sized up by Miller in new financial estimates in an investor note.
"We remain constructive on DKNG's ability to compound profitability/FCF at healthy incremental margins despite the recent selloff reflecting a wall of worry around various regulatory risks," Miller said.
The analyst shared Jackpocket revenue estimates of $90 million, $215 million and $300 million for fiscal 2024, fiscal 2025 and fiscal 2026, respectively. The analyst saw the segment hitting positive adjusted EBITDA in fiscal 2025.
Jackpocket is a popular digital lottery services provider available in 17 states covering ~35% of the U.S. population. The company had around 700,000 monthly unique payers in fiscal 2023.
Miller cited DraftKings' comments on higher online sports betting and iGaming revenue from overlapping customers and a strong ability to cross-sell as a positive for the acquisition.
On the increased taxes in Illinois front, Miller sees a 1% increase in the average tax rate resulting in adjusted EBITDA headwinds of 8% and 6% in fiscal 2025 and fiscal 2026 respectively. Miller's new financial forecasts saw the "blended average state tax rate" for DraftKings going from around 24% in 2023 to around 27% in 2029.
The analyst questioned if Illinois was an outlier or if more states would follow with increased tax rates.
"Specifically, a NJ [New Jersey] State Senator has proposed a bill that would increase the tax rate for online gaming to 30%, approximately double the current rate."
The analyst reiterated the Buy rating with a positive outlook on the company despite the potential short-term headwinds.
"We assume Jackpocket losses and IL tax increase are a drag in '24, though believe the combination of Jackpocket ramping profitability and tax mitigation efforts to more than offset higher taxes in IL beginning in '26."
The analyst said DraftKings should continue to benefit from secular tailwinds from the growing total addressable market size of online gaming, improving unit economics and strong cross-sell opportunities with the Jackpocket acquisition.
DKNG Price Action: DraftKings shares are down 0.44% to $38.72 on Thursday versus a 52-week trading range of $24.16 to $49.57. DraftKings stock is up 53% in the last year.
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