On Friday, BMO Capital adjusted its outlook on DraftKings Inc. (NASDAQ: NASDAQ:DKNG), lowering the price target to $48 from the previous $54, while maintaining an Outperform rating on the company. The adjustment followed DraftKings' second-quarter earnings for 2024, which fell short of market expectations, with revenue and adjusted EBITDA missing consensus estimates by 1.0% and 5.5%, respectively.
DraftKings reported a mixed forecast for the fiscal year 2024, with an 8% increase in the midpoint of revenue guidance but a 24% decrease in adjusted EBITDA expectations. This revision in guidance takes into account the acquisition of Jackpocket and the impact of higher taxes in Illinois. In response to the tax challenges, DraftKings revealed a strategy to implement a gaming tax surcharge on customer net winnings in high-tax states such as Illinois. The surcharge is expected to be a low-to-mid-single-digit percentage of winnings.
Despite the lower earnings and adjusted guidance, BMO Capital's reiteration of the Outperform rating indicates a continued positive outlook on DraftKings' stock. The new price target of $48 is based on 24 times the firm's forecasted fiscal year 2025 adjusted EBITDA.
The move by DraftKings to introduce a gaming tax surcharge is a strategic effort to mitigate the financial impact of increased taxes while still navigating the competitive landscape of the online gaming and betting industry. The company's proactive measures to manage tax-related headwinds reflect its adaptability in a dynamic market environment.
Investors and market watchers will be keeping a close eye on DraftKings' performance as it works to align its business strategy with the revised financial projections and regulatory challenges. The lowered price target reflects a cautious but still optimistic view of the company's potential to grow and maintain profitability in the coming years.
In other recent news, DraftKings Inc. reported second-quarter revenues of $1.104 billion, marking a 26% year-over-year increase, driven by robust customer engagement and new market expansion. The company raised its revenue outlook for 2024, despite lowering its EBITDA forecast due to factors like Illinois tax rate changes and losses from the newly acquired Jackpocket. DraftKings also authorized a $1 billion share repurchase program for its Class A common stock.
DraftKings received an upgrade from CFRA, citing the firm's strong financial position and innovative platform. Analysts at BMO Capital Markets maintained their Outperform rating, emphasizing the company's robust standing in the digital gaming space. However, Guggenheim reduced its price target for DraftKings to $51, following the company's Q2 earnings report.
The company is expanding its geographical footprint, planning launches in Washington D.C. and Puerto Rico. Truist Securities lowered its price target on the company's shares to $53 due to potential legislative changes in Illinois. These are recent developments in the company's journey.
InvestingPro Insights
In light of BMO Capital's revised outlook on DraftKings Inc. (NASDAQ: DKNG), it's valuable to consider additional insights from InvestingPro. Analysts expect a positive turn with net income growth projected for this year, and sales are also anticipated to rise. These expectations are supported by a robust revenue growth of 57% over the last twelve months as of Q1 2024, signaling strong top-line performance.
Moreover, despite recent volatility in stock price movements, DraftKings is trading at a high revenue valuation multiple, which may indicate investor confidence in the company's future growth prospects. The company's proactive tax strategy, as well as its operational adjustments, could be key factors in achieving the profitability that analysts predict for this year. For those interested in deeper analysis, there are more than ten additional InvestingPro Tips available, which can be explored for a comprehensive understanding of DraftKings' financial health and market potential.
InvestingPro Data highlights a market capitalization of $15.39 billion, with a high Price / Book multiple of 20.7 as of Q1 2024. Despite not paying dividends, the company has shown a significant return over the last decade, which may appeal to growth-focused investors. For a detailed assessment, including the latest analyst targets and fair value estimates, investors can refer to InvestingPro's full suite of tools and insights.
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