On Monday, Stifel has adjusted its outlook on DraftKings Inc. (NASDAQ: NASDAQ:DKNG) stock, reducing the price target to $48 from the previous $50, while still affirming a Buy rating. The adjustment follows a notable 10% decline in DraftKings' share value after the company's earnings report last Thursday.
The drop was attributed to concerns over user acquisition costs and promotional activities potentially affecting the company's adjusted EBITDA for the fiscal year 2024. Additionally, there was skepticism regarding the new gaming tax surcharge introduced by DraftKings.
Stifel's analysis acknowledges the shift in DraftKings' profit and loss dynamics, moving from user retention and monetization strategies that have immediate positive EBITDA effects, to focusing on user acquisition, which may be dilutive in the short term and more complex to forecast.
Despite these concerns, Stifel suggests that the market has a history of underestimating the total addressable market in the U.S. and sees no substantial reason to question the management's targets for user acquisition payback periods.
The firm also expressed some reservations about potential customer pushback due to the added tax surcharge, though it recognized the rationale behind this strategy compared to other common mitigation tactics. Stifel's stance remains that DraftKings has a compelling upside, which is now even more discounted following the recent sell-off.
In conclusion, Stifel reiterated its Buy rating, continuing to identify DraftKings as a select list idea, albeit with a slightly lower price target of $48, indicating a $2 decrease from the previous target. The firm's commentary provided a measured outlook on the challenges and potential for DraftKings moving forward.
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 boost of nearly 80% in new Online Sports Betting (OSB) and iGaming customers year-over-year, along with a 26% increase in revenue, reaching $1.104 billion. DraftKings also 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. Meanwhile, the company 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.
In terms of future expectations, 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 the company's continued focus on growth and customer acquisition in the competitive online gaming industry.
InvestingPro Insights
As DraftKings Inc. (NASDAQ: DKNG) navigates through its current challenges, real-time data from InvestingPro offers a mixed perspective on the company's financial health and stock performance. With a market cap of $15.55 billion, DraftKings is a significant player in the online betting industry. Despite not being profitable over the last twelve months, analysts are optimistic about the company's potential for sales growth and expect net income to grow this year, which aligns with Stifel's positive stance on the stock.
InvestingPro Tips indicate that the stock might be in oversold territory as suggested by the RSI, and analysts predict the company will be profitable this year. However, it's worth noting that 8 analysts have revised their earnings downwards for the upcoming period, reflecting some concerns over the company's future earnings. On the plus side, DraftKings has demonstrated a strong revenue growth of 43.26% over the last twelve months as of Q2 2024, which may reassure investors about the company's capacity to expand its market share and improve its financials in the long term.
For investors looking for more detailed analysis, there are additional InvestingPro Tips available that could provide further insights into DraftKings' stock performance and financial metrics. These tips can be accessed through the InvestingPro platform, which offers a comprehensive set of tools and data for investors to make informed decisions.
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