Financial

DraftKings Positioned to Beat Q2 Revenue Estimates, Says Analyst

If state data is any indication, DraftKings (NASDAQ:DKNG) is poised to top second-quarter revenue estimates. That’s the view of Loop Capital analyst Daniel Adam.

A staffer works on a laptop at DraftKings’ Boston headquarters. An analyst says the company will beat Q2 revenue estimates. (Image: Boston Globe)

In a note out earlier this week, Adam evaluated data from states that DraftKings is live in that recently reported monthly gross gaming revenue (GGR) and adjusted gaming (AGR). He pointed out that the sportsbook operator is trending toward a beat of revenue estimates for the April through June period.

In other words, based on the latest monthly GGR and AGR data releases, we expect another ‘beat and raise’ quarter from our top pick, Buy-rated DKNG,” said the analyst.

He analyzed recent AGR and GGR reports from Illinois, Indiana, Iowa, Michigan, New Jersey, and Pennsylvania. DraftKings is also live with online sports betting in Colorado, New Hampshire, Tennessee, Virginia, and West Virginia.

Adam reiterated a “buy” rating and a $105 price target on DraftKings stock. That forecast implies the shares will more than double from the June 24 close of $51.06.

DraftKings Forecast

The Loop capital analyst estimates DraftKings daily revenue is down just 11 percent on a quarter-to-date basis, well above the 23 percent decline other analysts are calling for.

Some sluggishness in April through June period is predictable for sportsbook operators because football — the most wagered-on sport in the US, is out of season. Additionally, there’s no college basketball, and the NBA and NHL seasons are winding down. For the current quarter, analysts expect DraftKings to lose 57 cents a share on revenue of $241.82 million. In its four prior earnings reports as a public company, the operator missed earnings per share (EPS) estimates each time.

Even if the daily fantasy sports (DFS) giant does beat second-quarter estimates, there are no guarantees the stock will react in a positive fashion. Last month, the Boston-based company lifted its 2021 revenue forecast to $1.05 billion to $1.15 billion from prior estimates of $900 million to $1 billion. However, the shares subsequently slumped.

The once-hot stock is off 31.35 percent from its March highs. But it’s higher by almost 4% over the past week, helped by Loop’s note and expectations the company will be one of the winners as single-game betting comes to Canada.

It Could Take a Lot

Assuming DraftKings beats and guides higher as Loop Capital’s Adam is predicting will happen, it could take an epic topping of second-quarter estimates and major raise to 2021 guidance to move the stock.

Recently, an array of iGaming and online sportsbook companies upped 2021 guidance, and in nearly every instance, the stocks subsequently continued lower.

For DraftKings, rallying on an earnings report might not boil down to beating revenue. But rather, showing investors it’s becoming more prudent with marketing spending and that its timeline to profitability is narrowing. That, however, remains to be seen.

Todd Shriber

Gaming Financials, Casino Business----Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund, where he specialized in trading sector and international ETFs leading up to and during the financial crisis. Currently, he analyzes, researches, and writes on ETFs for a variety of Web-based publications and financial services firms. Shriber has been quoted in Barron's, CNBC.com, and The Wall Street Journal. His work has been published on sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business, and Nasdaq.com. He joined the Casino.org news writing team in 2019, and lives in Southern California, where he enjoys golf and taking his black lab to the dog park. When in Las Vegas, he likes to wager on college football, the NBA, three-card poker, and roulette, even though he knows better. Email: todd.shriber@casino.org

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Todd Shriber