On Monday, Oppenheimer adjusted its stock price target for DraftKings Inc. (NASDAQ: NASDAQ:DKNG), lowering it to $55.00 from the previous $58.00, while keeping an Outperform rating on the shares. The adjustment follows DraftKings' recent announcement that it has reduced its EBITDA outlook for 2024. The company now expects EBITDA to be between $340 million and $420 million, a decrease from the earlier range of $460 million to $540 million.
The reduction in EBITDA guidance is attributed to higher costs associated with acquiring new customers, which has led to increased promotional expenses. Despite this, the company has affirmed its EBITDA projection for 2025, which remains set at $900 million to $1 billion. This is based on the anticipation that a growing user base will balance out the impact of higher Illinois taxes.
Oppenheimer's stance is that recent weaknesses in DraftKings' stock present a buying opportunity, particularly as organic engagement appears to be on the rise, reinforcing confidence in the company's ability to meet its EBITDA goals for 2026 and 2028 of $1.4 billion and $2.1 billion, respectively.
The firm notes that organic revenue for 2024 is expected to increase by approximately 3%, and the number of new customers has surged by 80% while customer acquisition costs have dropped by 40%. This dynamic is anticipated to alleviate concerns over competition from FanDuel.
There are ongoing debates regarding key gaming tax surcharges that are set to begin on January 1, which are not included in the guidance. These surcharges could amount to roughly 3.2% of net winnings in states like Illinois, New York, Pennsylvania, and Vermont. The industry is closely monitoring how Flutter Entertainment will respond and whether regulators will be able to block these measures.
The new price target of $55 reflects a market re-rating, taking into account the various factors currently influencing the valuation of DraftKings.
In other recent news, DraftKings, the digital sports entertainment, and gaming company, reported significant growth in customer acquisition and revenue for the second quarter of 2024. The company saw a nearly 80% boost in new Online Sports Betting (OSB) and iGaming customers year-over-year, along with a 26% increase in revenue, reaching $1.104 billion. Moreover, DraftKings announced a decrease in marketing costs by over 40% and a share repurchase program of up to $1 billion.
On the merger front, the integration of Jackpocket is progressing smoothly, with DraftKings expecting positive adjusted EBITDA from the acquisition in fiscal year 2025. Stifel has adjusted its outlook on DraftKings stock, reducing the price target to $48 from the previous $50, while still affirming a Buy rating. The adjustment follows concerns over user acquisition costs and promotional activities potentially affecting the company's adjusted EBITDA for the fiscal year 2024.
Furthermore, DraftKings has revised its EBITDA expectations for fiscal year 2024 to $340 million to $420 million, primarily due to an increase in the Sportsbook tax rate in Illinois.
Despite these challenges, DraftKings maintains its adjusted EBITDA forecast of $900 million to $1 billion for fiscal year 2025 and has raised its fiscal year 2024 revenue guidance to between $5.050 billion and $5.250 billion. These recent developments highlight DraftKings' continued focus on growth and customer acquisition in the competitive online gaming industry.
InvestingPro Insights
InvestingPro data shows DraftKings Inc. (NASDAQ: DKNG) with a market capitalization of $15.55 billion, underscoring its significant presence in the online gaming market. Despite not being profitable over the last twelve months, analysts remain optimistic about the company's sales growth, expecting net income to grow this year. The stock's price movements have been quite volatile, with a notable decline over the last three months, suggesting potential buying opportunities for investors who believe in the company's long-term growth prospects.
InvestingPro Tips indicate that while the stock has taken a hit recently, the Relative Strength Index (RSI) suggests it is in oversold territory—a condition that sometimes precedes a rebound in stock price. Additionally, with the company operating at a moderate level of debt, it maintains some financial flexibility. For those interested in further analysis, there are 13 additional InvestingPro Tips available, which provide deeper insights into DraftKings' performance and prospects.
It is also worth noting that the company's revenue growth has been robust, with an increase of 43.26% over the last twelve months as of Q2 2024. This aligns with the optimistic view of Oppenheimer, which sees the rising user engagement as a positive indicator for future EBITDA achievements. With the next earnings date set for November 1, 2024, investors will be keenly watching for signs of continued growth and operational efficiency improvements.
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