DraftKings King of Online Gaming Stocks, Says Analyst
Posted on: November 4, 2023, 08:25h.
Last updated on: November 6, 2023, 11:29h.
Fresh off a 26.69% gain this week, which extended its year-to-date rise to 196.31%, DraftKings (NASDAQ: DKNG) is royalty among online gaming equities.
That’s the sentiment of Macquarie analyst Chad Beynon, who, in a new note to clients, anointed the sportsbook operator the best avenue to play the online gaming market. He reiterated an “outperform” rating on the shares, while increasing his price target to $42 from $38. That implies upside of 24.44% from Friday’s closing print of $33.75.
DraftKings’ stellar earnings before interest, taxes, depreciation, and amortization (EBITDA) for the remainder of this year and 2024, coupled with leadership in domestic internet gross gaming revenue (GGR), were among the catalysts behind a Friday surge that saw the stock pop 16.46% on more than triple the average daily volume a day after the operator delivered third-quarter results.
DKNG reported another strong revs/EBITDA beat and raise in 3Q, driven by OSB/iGaming share gains as the operator took the pole position for US Online GGR in 3Q,” wrote Beynon. “During the quarter, DKNG experienced stronger retention/engagement, higher structural hold, and more efficient marketing/promo spend, partially offset by game outcomes given a tough YoY comp.”
Along with delivering third-quarter earnings Thursday, DraftKings told investors it now expects to post a 2023 EBITDA loss of $105 million on revenue of $3.695 billion. That compares with prior forecasts calling for an EBITDA loss of $205 million on sales of $3.5 billion.
DraftKings Guidance Supports “Best” Stock Thesis
DraftKings forecasts a 2024 EBITDA of $350 million to $450 million on sales of $4.5 billion to $4.8 billion. Even at the low end of those ranges, the gaming company would be on pace to notch its best year on record in 2024.
As a result of the bullish guidance, Beynon boosted 2023 through 2025 revenue estimates to $3.7 billion, $4.59 billion, and $5.63 billion, respectively. Assuming DraftKings continues its tradition of beating and raising forecasts, it could well live up to the Macquarie analyst’s best of billing.
“We view DKNG as the best way to play the bourgeoning U.S. Online market, given its first-mover advantage, strong brand recognition with the younger demographic, and superior tech,” Beynon added.
The analyst noted those are among the reasons why DraftKings and rival FanDuel have jumped out to a seemingly insurmountable lead in the U.S. online sports wagering space.
Just Scratching the Surface
DraftKings is roughly three and a half years into its journey as a standalone publicly traded company. Beynon believes the internet casino and online sportsbook operator is just getting started, and will continue delivering double-digit revenue growth for the foreseeable future.
DraftKings is just starting to realize benefits of unparalleled national scale, and “is just starting to show in operational efficiencies, evident by flow-through margins of 38% in 3Q and management’s 2024 guide, which implies 53% flow-through (midpoint) and meaningfully positive FCF. Given these trends, we think DKNG is well-positioned to protect its leadership position by continuously reinvesting in its business/tech,” concludes the analyst.
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