Analysts covering DraftKings (NASDAQ:DKNG) are defending the stock today after it tumbled more than six percent last week on a glum third-quarter earnings report and tepid revenue outlooks for 2021 and 2022.
The online sportsbook operator lost $1.35 a share in the September quarter — well below the loss of $1.06 analysts expected. DraftKings also tightened its 2021 top line forecast to $1.24 billion to $1.28 billion from $1.21 billion to $1.29 billion. That weighed on the shares last Friday, but the shares are higher by 1.64 percent in early trading Monday after some analysts defend the downtrodden gaming stock.
We are encouraged with the share gains DKNG achieved in September, coinciding with the cut over to its own product tech stack allowing for greater product innovation. DKNG made it clear the approach to Entain was opportunistic, and they believe they can achieve their target market share and product roadmap through SBTech,” said Needham analyst Bernie McTernan in a note to clients today.
He’s referencing DraftKings’ recently scrapped bid for Entain Plc (OTC:GMVHY), which some market observers believes was motivated by technology, implying the former suitor isn’t pleased with its SBTech platform.
Analysts Still Bullish on DraftKings…Sort Of
For the most part, sell-side analysts remain positive on DraftKings, though there is at least one dissenting voice.
At least one more — Oppenheimer’s Jed Kelly — says the gaming company can top its 2022 revenue forecast, beating analysts’ expectations in the process. For 2022, the company is estimating revenue of $1.7 billion to $1.9 billion, representing year-over-year growth of 43 percent. Wall Street is expecting $1.81 billion.
“We are increasing our revenue estimate in ’22E by nearly 20 percent to $1.91 billion . This contemplates $1.8 billion of same-state revenue, at the midpoint of the company’s guide plus ~$10 million for new territories including Canada, New York and Arizona,” said Kelly.
The Oppenheimer analyst did, however, trim his DraftKings price target to $70 from $80. Guidance issued by the company doesn’t include potential impact from state launches after Nov. 5.
Luck’s Gotta Improve, Focus on US
As pointed out by the company itself, clients’ proficiency in NFL betting hampered third-quarter results. Translation: The house doesn’t always win and that was evident in DraftKings’ September quarter results.
“A key focus for the quarter has been the unusually low hold rate, which mgmt expects to revert over the normal course of business and to improve further with increased adoption of in-game/micro-wagering and parlays,” said Jefferies analyst David Katz.
Katz also notes DraftKings “sufficiently addressed questions” pertaining to the Entain takeover effort and that the operator is likely to get back to focusing on its North American growth strategy.
DraftKings dropped its pursuit of Entain on Oct. 26 and if it wants to resume those talks with the former target, it has to wait six months from that date, pursuant to UK mergers and acquisitions code.
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