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DraftKings (DKNG) stock has been an impressive performer since the company went public last April, riding the wave of a rising secular trend – online sports betting (OSB). The momentum has continued in 2021, with share gains of 30% year-to-date.
Heading into next week’s (Feb 26) Q4 earnings, Oppenheimer’s Jed Kelly thinks the OSB player will spring a surprise on Wall Street.
The analyst anticipates DraftKings will boost its current $750–850 million 2021 revenue guidance based on 3 reasons: “VA/MI Jan. launches, iGaming share gains, and sustaining top 1–2 OSB positioning.”
“If January market share trends hold,” the analyst said, “combined with factoring conservatism on tougher NJ/PA iGaming comps, seasonality, and single-digit DFS growth, we still believe DKNG can potentially generate over $1B of ’21 revenue in the states where it is currently live. We expect DKNG’s OSB to be live in 2–3 additional states by NFL and are increasingly bullish on the Canada prospects.”
An analysis of state revenue trends shows that DraftKings’ OSB and iGaming figures are trending 19% and 16% above Opco/the Street’s 4Q20 revenue estimates. Even more impressively, the figures are 46% and 50% higher than Opco/ the Street’s 1Q21 revenue forecasts.
Additionally, Kelly thinks the company’s iGaming push is not being appreciated enough.
Although DraftKings hasn’t been able to leverage brick-and-mortar casinos’ loyalty programs and its brand is “under-indexed to middle-age females,” DraftKings is now a top-3 player in the iGaming markets; carving out 24%, 22% and ~20% market share in Michigan, New Jersey and Pennsylvania, respectively.
“We believe this speaks to DKNG’s CAC (customer acquisition costs) competencies that are hard for legacy competitors to replicate,” Kelly opined.
What’s more, although there were some backend-driven outages close to the recent Super Bowl kick-off, thirteen states and D.C. announced Super Bowl handle of $444 million, a 68% year-over-year increase. (without Nevada, $308 million – a 179% uptick).
Kelly believes this level of growth shows “how early we are in the industry cycle and the potential for OSB to sustain exponential growth over multiple years.”
Based on all of the above, Kelly rates DKNG an Outperform (i.e. Buy) along with an $80 price target. This figure implies a 31% upside from current levels. (To watch Kelly’s track record, click here)
DraftKings also gets decent support from Kelly’s colleagues; Based on 10 Buys, 4 Holds and 1 Sell, the stock has a Moderate Buy consensus rating. At $67.79, the average price target suggests upside of ~11% in the year ahead. (See DKNG stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.