- DraftKings tepid results are good news for investors, showing sustained user and engagement growth.
- The guidance for 2025 is solid, and the headwinds in 2024 are unlikely to repeat next year.
- Analysts are raising their DKNG targets and forecasting a double-digit upside and multi-year highs.
DraftKings (NASDAQ:DKNG) share price struggles to advance in 2024, but the signs are clear -- there is support for this stock. The technical action shows sustained support in the low end of a trading range, a strengthening base of support that will help propel the stock higher over the next year. The reason is leverage. The company experienced headwinds in Q3 related to favorable consumer outcomes that won’t persist over the long term. The odds are in favor of DraftKings; the house always wins.
Guidance for the 2024 fiscal year is weighing on the stock price action. The company trimmed its guidance because of the Q3 headwind, reducing the outlook for revenue to a range with the high end below the analyst consensus. However, the company maintained its forecast for 2025, introducing a revenue range that sustains the low-to-mid 30% pace set in 2024. Growth will slow to 31% from this year’s 32% to 35%, still robust and leading toward sustained profitability.
DraftKings’ Tepid Quarter Looks Better at Second Glance
DraftKings results and guidance are lackluster at first glance. However, a second look reveals a company with a solid 39% top-line growth that only missed the consensus estimate by a slim 90 basis points margin. The growth was driven by customer acquisition and engagement, aided by new offerings, expanding territory, and improvement in the core hold rate.
The revenue per monthly active user fell by 10% but is offset by the cause and the 55% increase in user count. Revenue per user is down because of the acquisition of Jackpocket, an opportunity for the company to improve segment hold while incorporating Jackpocket into the ecosystem. Adjusted user hold is much better and up 8%.
Margin news is mixed. The company reported a net loss due to increased investment and SG&A expenses intended to support the growth trajectory, but it aligned with the prior year and was less than expected. The adjusted loss of $0.17 is more than nickel above the consensus and tracking in the right direction. The company is expected to sustain profitability in 2025.
DraftKings Builds Value; Equity Rises by Double-Digits
DraftKings' balance sheet shows the impact of acquisitions, with cash down and liabilities rising, but the net results are favorable for investors. The company is building its asset base and improving shareholder equity by 28%. The risk is that much of the asset gain is in intangibles and goodwill, although the brands behind them are strong and gaining popularity. Regardless, the balance sheet remains healthy, with a long-term liability of only 1.5x equity and ample liquidity.
The analysts show a high conviction in DraftKings' long-term outlook, with 27 rating it a consensus of Moderate Buy and 89% or 24 of the ratings a Buy or better equivalent. The price target is rising in 2024, with revisions leading to the high-end range. The consensus of $50 implies a 30% upside for the market, and the high-end range is closer to 50% from the critical support target.
DraftKings Is an Updraft: Could Double in Price in 2025
DraftKings' share price action over the last few years is a textbook worth of recognizable movements indicating bottoming and the blossoming of a stock price reversal still underway. The most recent action shows a healthy Head & Shoulders pattern, confirming support at the low end of the 2024 trading range with a high probability of continuing higher. There is some resistance to higher prices at the mid-point range, but it is likely insufficient to cap the market. If the market can move above that level, it will likely reach the top of the range, nearly $50 and the analysts' consensus target, or higher. If not, DKNG stock could remain range-bound below $40.50. 