Four years ago, Jason Robins was looking to the future.
“We have a good story that resonates with investors for the long-term,” Robins, co-founder and CEO of DraftKings (DKNG) , told CNN Business in April 2020.
Related: Analysts revise DraftKings stock price target after Kentucky Derby
The sports betting platform had just completed $3.3 billion reverse merger that made it a public company. The deal merged it with Diamond Eagle Acquisition, a special-purpose acquisition company that went public in May 2019, and SBTech Global.
This was during the Covid-19 pandemic shutdown, when nothing in the way of sports was happening.
But Robins was confident that sports leagues would eventually resume their games. It was just a matter of when, not whether.
And in all fairness, DraftKings had announced the deal back in December 2019, when most of the world didn’t know anything about Covid.
Back then, Robins said he was looking forward “to building significantly upon our goals of continuing our state-by-state rollout and creating the most entertaining and engaging customer experiences for sports fans globally.”
Analysts adjust price target on DraftKings.
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DraftKings CEO sees good things for second half
Sports leagues did eventually return and online sports betting revenue is now projected to reach $11.87 billion this year, according to Statista. An annual growth rate of 11.45% will result in a projected market volume of $20.41 billion by 2029.
The number of users is expected to amount to 83.7 million users by 2029, while user penetration will be 11.6% in 2024 and is expected to hit 15.9% by 2029.
Related: DraftKings stock analysts revamp price targets ahead of NCAA Final Four
DraftKings, founded in 2012, is scheduled to report second-quarter results on Aug. 2.
In May, the company posted an adjusted first-quarter net loss of 3 cents a share, narrowed from a loss of 51 cents a year earlier and beating Wall Street’s call for a loss of 29 cents a share.
Revenue totaled $1.18 billion, up 53% year over year and exceeding analysts’ consensus forecast of $1.12 billion.
DraftKings also raised its guidance and now expects 2024 revenue between $4.8 billion and $5 billion, up from its earlier forecast of $4.65 billion to $4.9 billion.
During the May 3 earnings call with analysts Robins said “DraftKings is off to an outstanding start in 2024, and we’re excited to be raising our outlook for the year.
“We acquired customers efficiently and a population penetration rates consistent with prior launches,” he said. “We expect both place to contribute positively to adjusted Ebitda for the second half of 2024.” (Ebitda is earnings before interest, taxes, depreciation and amortization.)
Analysts at Oppenheimer are seeing some challenges facing the company — at least in the near term.
On July 1, the firm lowered its price target on DraftKings to $58 from $60 while affirming an outperform rating on the shares.
The firm told investors in a research note that it was reducing its second-quarter Ebitda forecast to $121 million, and the full-year figure to $440 million, due to several factors.
These factors include lower-than-expected hold — the percentage of the amount gambled that DKNG takes in — in Q2; higher promotions targeting new players, increased taxes in Illinois, and investments in the digital lottery app Jackpocket, which DraftKings acquired for $750 million.
Analysts see pressures on company
DraftKings unveiled the Jackpocket deal in February and completed the acquisition in May. The company said in a statement that the deal “empowers DraftKings to tap into the expansive U.S. lottery vertical, while expanding its position in sportsbook and iGaming by enhancing customer lifetime value and bolstering customer acquisition capabilities.”
As far the Prairie State, DraftKings and Flutter Entertainment’s (PDYPF) FanDuel will see their net revenue tax on a scale that tops out at 40% under the spending plan passed by the Illinois General Assembly last month, the Chicago Sun-Times reported on June 2.
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That’s up from the 15% flat rate levied against sportsbooks since the now $1 billion Illinois industry launched in 2020
Oppenheimer views pressure on Draftkings’ hold as transitory, higher promotions into a larger new-user base as positive, taxes as structural but manageable to offset Illinois in 2025, and Jackpocket providing a massive cross-selling edge.
On June 25, Wells Fargo lowered its price target on DraftKings to $53 from $54, while maintaining an overweight rating on the shares.
The firm lowered profit estimates, with second-quarter adjusted Ebitda now seen at $118 million on higher promotions stemming from greater new-customer acquisition as well as low hold, the analyst tells investors in a research note.
And Deutsche Bank last month maintained a hold (effectively neutral) rating on DraftKings with a steady price target of $35. The investment firm suggested caution due to increasing regulatory risks and a likely shortfall in second-quarter earnings relative to company guidance.
DraftKings is anticipated to face a challenging comparison in the second half of 2024 within the industry, Deutsche Bank said, according to Investing.com.
The bank said it expected DraftKings to post a year-over-year narrowing in gross margin for Q2, noting elevated customer-acquisition costs, lower-than-anticipated online sports betting hold compared with structural hold guidance, and a greater proportion of gross gaming revenue coming from jurisdictions with higher tax rates.
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