DraftKings stock analysts revamp price targets ahead of NCAA Final Four
You feel lucky today?
Then, the folks at DraftKings (DKNG) will be happy to help you out.
We're in the midst of March Madness, the annual NCAA college basketball tournament, and barreling hell-bent-for-leather toward the Final Four, which should be a monstrously big deal for the Boston sports-betting company.
An American Gaming Association survey found that a quarter of all U.S. adults —that's 68 million red-blooded Americans or roughly the entire population of France, mon ami — plan to wager $15.5 billion on this year’s NCAA Men’s Division I Basketball Tournament.
The group said that the growth in March Madness betting is being driven by a resurgence of bracket contests and people taking advantage of the expansion of legal online wagering.
Three-fourths of online bettors said this would be their first time betting on March Madness online, the association said.
"March Madness is one of the best traditions in American sports and America's most wagered-on competition," AGA President and Chief Executive Bill Miller said in a statement. "Critically. the expansion of regulated sports betting over the past five years had brought safeguards to more than half American adults who could now bet legally in their home market."
DraftKings CEO Jason Robins sees big things ahead for online betting.
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DraftKings CEO: Early innings of US online gaming
“We are still in the early innings of the U.S. online gaming industry, and there is still share that can be gained through innovation and operational excellence,” Robins told analysts during the company’s fourth-quarter-earnings call in February. “We will continue to focus on product and customer experience as key differentiators."
Related: The amount of money Americans are betting on March Madness is getting ridiculous
DraftKings posted a Q4 loss of 10 cents a share, compared with FactSet’s call for a profit of 8 cents a share, and better than the loss of 53 cents a share in the year-earlier period. Adjusted earnings came to 29 cents a share in the quarter.
Revenue totaled $1.23 billion, compared with FactSet’s call of $1.24 billion, and ahead of the year-ago tally of $855 million.
Wall Street's view of DraftKings
How does Wall Street feel about DraftKings? Funny you should ask.
Analysts at Mizuho Group initiated coverage of DraftKings with a buy rating and a $58 price target.
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The firm cited upside to revenue growth driven by strong same-state trends, with incremental upside from additional state legalization; better-than-expected operating leverage, and better-than-expected free cash flow generation.
"While historically viewed as an ‘unprofitable tech company’ by the market (until recently), we project DKNG can become one of the more compelling free-cash-flow stories in our coverage,” the analysts said in a research note.
Moving forward, the analysts said, DraftKings "should benefit from strong same-state revenue trends, and declining operating expense (a dynamic we believe is misunderstood) fueling high flow-through EBITDA growth and robust (free cash flow) generation."
"We believe there is a natural maturation of customers (combination of higher discretionary income and maturing cohort), which drives increased sports-betting demand," Mizuho said. "For example, increased comfort level with the platform and sports-betting knowledge driving larger wagering volumes."
Susquehanna analyst Joseph Stauff raised the firm's price target on DraftKings to $54 from $51 based on quarter-to-date state data through February.
The analyst said that DraftKings' revenue and EBITDA estimates for Q1 2024, which suggest 45% year-over-year revenue growth, are conservative, especially considering March accounts for roughly 40% of the quarter's total.
Stauff noted that before March's figures were included, DraftKings' first-quarter 2024 revenue was trending 5% to 8% higher than previously expected.
Analysts: DraftKings 'setting themselves apart'
This uptick comes before the impact of the launch of DraftKing’s Sportsbook in North Carolina. Once it goes live in North Carolina, the company said, DraftKings Sportsbook will be available in 27 U.S. states and Ontario.
Related: Top ESPN host's gaffe pushes network's ethics on gambling into the spotlight
On March 26 DraftKings announced a personnel shift, whereby Jason Park, currently chief financial officer, will become chief transformation officer, effective May 1. Alan Ellingson, senior vice president of finance and analytics, will become CFO.
Susquehanna said the management changes were “significant,” adding that “the potential long-term Ebitda-margin profile for DKNG of about 30% is incrementally derisked with this move and creates potential upside."
In February, DraftKings said it had agreed to acquire the Santa Barbara, Calif., software company Jackpocket for $750 million. Jackpocket is an online lottery courier service that operates in 14 states and Washington, D.C., offering users a secure way to purchase state lottery tickets.
Bank of America analysts raised their price target for DraftKings to $54 from $50 and reiterated their buy rating after meeting with company executives.
"DKNG seems confident in Alan Ellingson's ability to execute on financial goals, and it's our sense Jason Park is excited to have more operating responsibility," the analysts said in a research note.
The analysts said they expect Park to initially focus on the Jackpocket integration and AI initiatives to drive cost savings and revenue generation.
"DraftKings is setting themselves apart from peers with their balanced focus on both marketing and product & technology," B of A said.
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