On Monday, Oppenheimer adjusted its outlook on DraftKings Inc. (NASDAQ:DKNG) shares, lowering the price target to $58 from the previous $60, while retaining an Outperform rating on the stock.
The revision follows a reassessment of the company's second-quarter and full-year 2024 EBITDA estimates, now set at $121 million and $440 million respectively, down from the earlier forecast of $150 million and $506 million.
The firm cited several factors for the adjustment, including lower-than-expected hold in the second quarter, a rise in promotions targeting new players, increased taxes in Illinois, and investments in Jackpocket. Despite the reduced estimates, management discussions indicate strong Monthly Unique Player (MUP) trends, which align with third-party data.
DraftKings' marketing spend for 2024 is expected to remain consistent with the first-quarter guidance of a modest decline. The analyst from Oppenheimer believes that the company's ability to attract more players is a key element for maintaining their 2025 and 2026 EBITDA projections largely unchanged.
They anticipate that more efficient Customer Acquisition Costs (CAC) will help balance out margin pressures from increased promotional activities and tax rate assumptions.
The report suggests that while the current pressures on hold are viewed as temporary, with the expectation that the majority of winnings will be reinvested, the higher promotional activities could positively impact the growing user base.
Structural tax changes are seen as a challenge, yet the firm believes there are sufficient strategies to counterbalance the impact in Illinois by 2025. Additionally, Jackpocket is seen as providing a significant advantage for cross-selling opportunities.
In summary, the price target adjustment to $58 from $60 reflects these updated expectations, but the Outperform rating remains unchanged, signaling confidence in the company's long-term performance despite near-term headwinds.
In other recent news, DraftKings Inc. has undergone several significant changes. Guggenheim recently adjusted its price target for DraftKings to $52.00 from $53.00, while maintaining a Buy rating.
The firm's second-quarter revenue estimate for DraftKings remains at $1.12 billion, but the adjusted EBITDA expectation has been reduced to $143 million from $164 million. Meanwhile, Deutsche Bank reiterated a Hold rating on DraftKings shares with a target of $35, citing regulatory risks and a potential shortfall in 2Q24 earnings.
DraftKings also welcomed the return of Erik Bradbury as its Chief Accounting Officer, with a significant restricted stock unit award marking his reappointment. In other analyst news, Morgan Stanley maintained its Overweight rating and a $51.00 price target on DraftKings shares, reestablishing its position as their Top Pick in the North American Gaming & Lodging sector.
Susquehanna International Group maintained a positive rating but lowered its shares target to $49 from $56, reflecting stronger than anticipated industry growth and the recent acquisition of JackPocket.
Lastly, BMO Capital maintained an Outperform rating and a stock price target of $54.00 for DraftKings, showing confidence in the company's long-term prospects despite potential challenges from new tax legislation in Illinois. These are the latest developments in DraftKings' trajectory.
InvestingPro Insights
As DraftKings Inc. (NASDAQ:DKNG) navigates a dynamic market environment, recent data from InvestingPro underscores the company's growth trajectory and market position. Analysts tracking DKNG anticipate sales growth in the current year, a positive sign for the company's revenue prospects. This aligns with the robust 57.0% revenue growth seen over the last twelve months as of Q1 2024, reflecting a strong push in market expansion and user acquisition.
An InvestingPro Tip suggests that while DraftKings has not been profitable over the last twelve months, analysts predict the company will turn a profit this year, which could be a pivotal moment for investor confidence. This tip is particularly relevant for investors considering the long-term value of their holdings. Additionally, with a significant 43.66% one-year price total return as of mid-2024, DraftKings demonstrates its potential for strong returns over an extended period.
Despite a high Price / Book multiple of 22.26, which indicates a premium valuation, the company's aggressive growth strategy and the anticipated transition to profitability could justify this valuation to growth-oriented investors. The market cap of $18.5 billion USD further solidifies DKNG's stance in the competitive online betting industry. For investors intrigued by these insights, there are additional InvestingPro Tips available on InvestingPro, which can be accessed with a special discount using the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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