On Tuesday, Morgan Stanley maintained its Overweight rating on DraftKings Inc. (NASDAQ: NASDAQ:DKNG) but reduced the price target to $47.00 from the previous $51.00. The adjustment follows DraftKings' second quarter and full-year 2024 EBITDA guidance, which fell short of Morgan Stanley's expectations due to weaker profitability. This was attributed to increased costs associated with acquiring more customers, rather than a rise in costs per customer.
The recent quarter's performance prompted a thorough analysis of user economics by Morgan Stanley, focusing on the growth and profitability potential of DraftKings. As a result, the firm has revised its estimates to account for higher revenue coupled with a more extended period before EBITDA profitability is achieved.
Morgan Stanley's reiteration of the Overweight rating indicates their continued confidence in DraftKings' potential, despite the near-term challenges identified. The revised price target reflects a more cautious outlook on the timeframe for the company to reach its profitability goals.
The adjustment in DraftKings' financial projections and the subsequent price target change by Morgan Stanley come as the company navigates the competitive landscape of customer acquisition in the online betting industry. The firm's analysis suggests that while revenue may grow, the path to EBITDA profitability may take longer than previously anticipated.
The updated price target of $47.00 represents Morgan Stanley's current valuation of DraftKings Inc. based on the latest available financial data and market conditions. DraftKings, as a company listed on the NASDAQ, continues to be a watched player in the online sports betting market.
In other recent news, DraftKings has experienced significant growth in customer acquisition and revenue. The company's recent quarterly report indicated an 80% increase in new Online Sports Betting (OSB) and iGaming customers year-over-year and a 26% rise in revenue to $1.104 billion. Notably, DraftKings also reduced its marketing costs by over 40% and announced a share repurchase program of up to $1 billion.
In terms of financial guidance, DraftKings has revised its projected EBITDA for 2024 downward to a range of $340 million to $420 million. This adjustment is primarily due to an increase in the Sportsbook tax rate in Illinois. However, the company maintains its adjusted EBITDA forecast of $900 million to $1 billion for fiscal year 2025.
Analysts from Truist Securities, Stifel, and Oppenheimer have adjusted their price targets for DraftKings, citing reasons such as changes in profit and loss dynamics and upcoming high-tax surcharges. The price target revisions range from $48 to $55, but all firms maintain a Buy rating on the stock.
On the merger front, DraftKings announced the smooth progression of the Jackpocket integration, expecting a positive adjusted EBITDA from the acquisition in fiscal year 2025. These recent developments highlight DraftKings' ongoing efforts to navigate changes in the industry and maintain growth.
InvestingPro Insights
As Morgan Stanley provides a revised outlook on DraftKings Inc. (NASDAQ: DKNG), it's valuable to consider the latest InvestingPro data and tips that could further inform investors. According to real-time data, DraftKings boasts a market capitalization of $14.49 billion, underlining its significant presence in the online sports betting market. Despite recent challenges, the company has experienced notable revenue growth, with a 43.26% increase over the last twelve months as of Q2 2024. This aligns with the analyst anticipation of sales growth in the current year, a positive sign for potential investors.
However, the road to profitability appears to be a topic of concern, as reflected in DraftKings' negative P/E ratio of -34.83, signaling that the company is not currently profitable. InvestingPro Tips suggest that while analysts predict DraftKings will become profitable this year, the stock has been volatile and has fared poorly over the last month, with a price total return of -21.16%. Moreover, the stock is considered to be in oversold territory according to the Relative Strength Index (RSI), which could interest investors looking for a potential rebound.
For those considering adding DraftKings to their portfolio, it's worth noting that the company operates with a moderate level of debt and does not pay a dividend to shareholders. With these insights in hand, investors may find additional value in the 13 other InvestingPro Tips available at https://www.investing.com/pro/DKNG, which provide a more comprehensive view of DraftKings' financial health and market position.
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