DraftKings Reports Q4 EPS Beat, Raises Guidance

DraftKings (NASDAQ:DKNG) shares rose more than 2% intra-day today after Morgan Stanley added the stock to its Top Picks list, despite Illinois recently adopting a higher, progressive tax structure. The investment bank contends that tax hikes do not automatically translate to identical impacts across all markets and should not be considered inevitable.

Morgan Stanley noted that not all states face budget shortfalls, so higher taxes should not be universally expected. They also emphasize that increased taxes may not be directly comparable since operators often reduce their investments, marketing efforts, and promotions in response.

The bank highlights that in states needing to address budget deficits, the expansion of legalized gaming could present opportunities, such as online sports betting in California and Texas, or iGaming in Maryland, New York, and Illinois. The analysts believe concerns over taxes are exaggerated and that positive earnings will serve as a significant catalyst.

On Tuesday, May 28, 2024, Needham reiterated its Buy rating on DraftKings Inc. (NASDAQ:DKNG), maintaining a hold action on the stock. At the time of the announcement, the price of DKNG was $40.81. This endorsement was published by StreetInsider, further emphasizing Needham's confidence in the company's prospects. DraftKings, a prominent player in the online sports betting and gaming industry, has been under the spotlight due to its dynamic market performance and the evolving regulatory landscape affecting its operations.

The recent legislative changes in Illinois, which introduced a tax increase on sports betting, have notably impacted DraftKings and its parent company, Flutter Entertainment. This development, as highlighted by Market Watch, led to a decline in the trading value of both companies. The tax hike poses a challenge to their financial outlook, emphasizing the importance of regulatory factors in the sports betting industry. Despite these hurdles, DraftKings continues to attract attention from investors and analysts, as evidenced by its activity on Zacks.com.

DraftKings has experienced market volatility, particularly after its earnings report on May 3, which resulted in a 2.8% drop in its stock price. However, the company's stock has shown resilience, trading at $42.42, despite a series of declines. This resilience is attributed to DraftKings nearing a historically bullish trendline, suggesting a potential rebound. According to Forbes, the stock's approach within one standard deviation of its 80-day moving average has historically led to an average return of 8.9% one month later, indicating a promising outlook for investors.

Furthermore, the affordability of DraftKings' options, with the stock's Schaeffer’s Volatility Index (SVI) ranking in the lower 3rd percentile, presents an attractive opportunity for investors. The company's market capitalization of around $19.43 billion and a trading volume of 7.17 million shares reflect its significant presence in the market. Despite the challenges posed by regulatory changes and market volatility, DraftKings' strategic position near a bullish trendline and the positive sentiment from analysts like Needham suggest a potential for recovery and growth in the near term.

DraftKings (NASDAQ:DKNG) announced its financial results for the fiscal fourth quarter and adjusted its financial outlook upwards for the year 2024.

The company outperformed with earnings per share (EPS) of $0.29, surpassing the analyst consensus of $0.08. However, its revenue of $1.23 billion was marginally below the anticipated $1.24 billion.

Looking ahead, DraftKings has revised its revenue expectations for the fiscal year 2024 to a range of $4.65 billion to $4.9 billion, compared to the analyst consensus of $4.69 billion. This update marks an increase from the previously forecasted range of $4.50 billion to $4.80 billion.

Furthermore, DraftKings has raised its adjusted EBITDA outlook for 2024 to between $410 million and $510 million, an adjustment from the prior estimate of $350 million to $450 million.

Stifel analysts upgraded DraftKings (NASDAQ:DKNG) from Hold to Buy, increasing the stock's price target from $40 to $45 per share. The analysts highlighted DraftKings' promising prospects for 2024, suggesting that current short-term challenges are overshadowing the company's positive trajectory this year.

The analysts noted that despite DraftKings' slight pullback from its late-2023 highs, its performance remains closely tied to market shares in state-reported handle/GGR. They observed that from October to December, DraftKings saw a reduction in market share compared to competitors like FanDuel and ESPN Bet.

However, the analysts see an opportunity in this minor correction. They argue that near-term challenges, such as competitive promotions from ESPN Bet and sports seasonality, are diminishing. This shift allows investors to refocus on DraftKings' fundamental strengths, including robust same-state handle growth, structural hold-rate expansion, disciplined marketing and promotions, and fixed cost efficiencies. These factors, the analysts believe, could lead to potential upside beyond DraftKings' already promising EBITDA guidance.

MoffettNathanson analysts upgraded DraftKings (NASDAQ:DKNG) from Neutral to Buy rating, boosting their price target from $31 to $37. As a result, shares jumped around 6% intra-day today.

Reflecting on DraftKings' Q4/22 letter, the analysts highlighted CEO Jason Robins' strategy to boost profitability by judiciously reducing expenses yet continuing to invest in the company's long-term strengths.

The analysts commended DraftKings for both cutting costs and surpassing revenue expectations. Additionally, they pointed out that DraftKings is closing its market share gap with U.S. sports betting leader FanDuel and surpassed BetMGM as the top U.S. iGaming entity in the recent quarter.

DraftKings (NASDAQ:DKNG) shares saw more than 3% increase intra-day today after an upgrade by JPMorgan.

The bank upgraded the company from Neutral to Overweight and raised the price target from $26 to $37, suggesting a potential 35% upside from the previous day's closing price.

The upgrade comes in response to DraftKings' underperformance since July, with a 13% decline compared to a 6% drop in the S&P 500. The analysts are optimistic about the sports betting industry's growth potential, both in existing markets and new markets, amid a trend toward better cost control.

The analysts believe DraftKings has a strong competitive position, including a robust product, scale, and brand, that will enable it to compete effectively against new entrants like ESPNBet and Fanatics.