On Friday, CFRA upgraded shares of DraftKings Inc. (NASDAQ: NASDAQ:DKNG) from Buy to Strong Buy, while also increasing the price target to $46 from $42. The adjustment comes after DraftKings reported third-quarter earnings that surpassed consensus estimates and displayed significant year-over-year growth in monthly active users and average revenue per user.
DraftKings, a prominent player in the digital sports entertainment and gaming industry, has demonstrated a robust financial performance with third-quarter normalized earnings per share (EPS) at ($0.17) compared to last year's ($0.35). This outperformance was $0.07 higher than consensus estimates. The company's revenues reached $1.1 billion, although falling slightly short of expectations by $16 million.
The company's market reach has expanded considerably, with operations now live in 25 states plus Washington D.C., covering nearly half of the U.S. population. The user engagement metrics were particularly strong, with a 55% year-over-year increase in monthly active users to 3.6 million and a 10% increase in average revenue per user, which now stands at $103. The growth remains substantial even after adjusting for the Jackpocket acquisition, with a 27% year-over-year rise in monthly active users.
CFRA's revised price target is based on 3.6 times DraftKings' projected 2025 revenue, aligning with the company's three-year average forward price to sales ratio. This target reflects CFRA's view that DraftKings will maintain its trading advantage over peers due to its superior top-line growth and leading mobile sportsbook platform. The firm's confidence in the company's prospects is further underscored by maintaining its adjusted EPS estimates of $0.25 for 2024 and $0.50 for 2025.
The upgrade and raised price target suggest that CFRA sees the recent consolidation in the market as an opportune moment for investors to engage with DraftKings' stock. The firm highlights DraftKings' innovative efforts and the strength of its mobile app as key factors contributing to the company's competitive edge in the sports betting arena.
In other recent news, DraftKings Inc. has been the focus of multiple financial updates. The company's third-quarter revenues and adjusted EBITDA fell short of market expectations by 1.5% and 14%, respectively. Despite this, DraftKings managed to surpass analyst estimates by reporting an adjusted earnings per share of -$0.17, compared to the predicted -$0.42. Revenue saw a year-on-year increase of 39%, reaching $1.1 billion.
The company also revised its full-year 2024 earnings guide downwards due to unfavorable sports outcomes early in the fourth quarter of 2024. However, the initial full-year 2025 revenue guidance, with a midpoint between $6.2 billion and $6.6 billion, surpasses the current consensus estimate of $6.25 billion.
These recent developments led Piper Sandler to maintain its Overweight rating on DraftKings and raise the price target to $53.00 from the previous $48.00. This decision was influenced by DraftKings' 14% year-over-year growth in player acquisition during the third quarter and a 20% reduction in customer acquisition cost. This trend suggests that DraftKings is achieving better economic efficiency as it scales.
InvestingPro Insights
DraftKings' recent performance and CFRA's upgrade are further supported by real-time data from InvestingPro. The company's market capitalization stands at $19.91 billion, reflecting its significant presence in the digital sports entertainment and gaming industry. InvestingPro data shows a robust revenue growth of 40.01% over the last twelve months, aligning with the strong user engagement metrics mentioned in the article.
Two key InvestingPro Tips are particularly relevant to the article's content. Firstly, analysts anticipate sales growth in the current year, which corroborates CFRA's positive outlook on DraftKings' revenue prospects. Secondly, the company has shown a significant return over the last week, with a 9.22% price total return, indicating recent market confidence that may be linked to the strong third-quarter earnings report.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for DraftKings, providing a deeper understanding of the company's financial health and market position.
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