DraftKings Earns Analyst Support on New Product Offerings, Fuller Sports Slate

Posted on: August 17, 2020, 09:47h. 

Last updated on: August 17, 2020, 12:33h.

DraftKings (NASDAQ:DKNG) rallied Monday, clawing back some of last Friday’s losses after analysts stepped up in support of the sportsbook operator’s shares. They cited new product launches and data confirming pent-up demand for sports wagering.

DraftKings Gets Analyst Support Despite Earnings
Esports betting could be a significant long-term driver for DraftKings, says an analyst. (Image: Getty Images)

In a note to clients today, Canaccord Genuity analyst Michael Graham reiterated a “buy” rating and $50 price target on DraftKings. That forecast implies an upside of almost 43 percent from current levels. The stock was drubbed last Friday due in part to the company reporting a wider-than-expected second-quarter loss. Though revenue rose, it indicates the operator is spending heavily on customer acquisition and marketing.

Those efforts could pay dividends in the current quarter, with more sports available for bettors and daily fantasy (DFS) players.

Wagering trends have been strong in Q3, as MLB, the NBA, and the NHL began or resumed their seasons with record handles across the board, and DraftKings has also seen impressive stability from eSports, and thinks it can be one of its largest categories over time,” said Graham.

Data confirm the return of sports is meaningful for sports wagering equities, including DraftKings. The company’s May/June UFC handle was triple its previous record for a comparable period of time.

The first two weeks of MLB led to triple the handle of the first two weeks of the 2019 season, while four of the five largest NBA betting days in DraftKings’ history occurred since the league restarted last month, according to Graham.

Geographic, Product Expansion

The Canaccord analyst sees geographic expansion and increased product breadth as potential catalysts for DraftKings going forward.

Several states, including Colorado, Illinois, and Michigan, joined the roster of “live and legal” sports wagering states either right before or during the coronavirus shutdown. That means the current quarter is the first real proving ground for sports betting demand in those areas. DraftKings is operational in all three of those states. In the second quarter, the company also debuted online casinos in New Jersey, Pennsylvania, and West Virginia.

DraftKings is working with regulators in multiple states to transition from offering DFS games to eSports wagering. Michigan, Tennessee, and Virginia approved eSports wagering, but it’s not yet live in those states, and those opportunities aren’t included in DraftKings’ 2020 revenue guidance of $500 million to $540 million, according to the Canaccord analyst.

NFL Is Vital

The aforementioned forecast assumes no revenue from college sports in the second half. The Big 10, PAC-12 and several Group of Five conferences are delaying 2020 football, and the PAC-12 said no basketball games will be played until at least January.

That makes the NFL season pivotal for DraftKings. But it appears the most popular league in the US will move ahead with its 2020 season as planned.

“With still well-below highs, strong engagement on events that have taken place, and the NFL season looking likely to happen, we see a positive setup for the stock in 2H20,” said Graham.