Shares of DraftKings (DKNG) are in the spotlight on Tuesday as Wall Street digests the company's quarterly report from last week. Northland analyst Greg Gibas was one of the many analysts who lowered their price targets on the stock following DraftKings' earnings report. However, he kept a Buy rating on the name as he continues to like the company's competitive positioning. Meanwhile, two of his peers moved to the sidelines, but from opposite directions. While Roth Capital analyst Edward Engel upgraded DraftKings to Neutral from Sell, Wells Fargo analyst Daniel Politzer downgraded the stock to Equal Weight from Overweight, citing his growing concern on the company's path to profitability.
MOVING TO THE SIDELINES: Roth Capital analyst Edward Engel upgraded DraftKings to Neutral from Sell with a price target of $19, down from $23. The analyst noted DraftKings is guiding to 2022 EBITDA losses of $875M in live states, but also expects a significant inflection by year-end 2023, including positive EBITDA in the fourth quarter of 2023 and near break-even for 2024. BetMGM (MGM), Flutter Entertainment's (PDYPY) FanDuel and Caesars (CZR) also expect profitability by year-end 2023, after incurring similar or greater losses in 2022 as 2021. If these expectations materialize, DraftKings' shares could rebound materially, Engel argued. However, he remains skeptical.
Meanwhile, Wells Fargo analyst Daniel Politzer downgraded DraftKings to Equal Weight from Overweight with a price target of $19, down from $41. The analyst noted he remains bullish on U.S. digital gaming, but prefers Caesars and Flutter Entertainment. His downgrade is company specific and reflects his growing concern on DraftKings' path to profitability given its fast-growing operating expenses. Politzer forecasts DraftKings' contribution profit to accelerate in the coming years, but finds it difficult to model a scenario where it achieves positive full-year EBITDA before 2025. The company noted it expects to be EBITDA positive in the fourth quarter of 2023, but the fourth quarter is seasonally DraftKings' best EBITDA quarter, and with other states potentially legalizing/launching in the next 18 months, it seems unlikely it will achieve positive EBITDA until 2025, he argued.
TARGET CUTS: Northland analyst Greg Gibas lowered the firm's price target on DraftKings to $40 from $45 to reflect lower profitability in 2022 and delayed break-even after the company introduced 2022 adjusted EBITDA guidance of ($825)-(925M) that was "well below" consensus at ($573M). However, Gibas kept an Outperform rating on the shares as he continues to like DraftKings' competitive positioning as well as its recent and upcoming new market launches.
Canaccord analyst Michael Graham also lowered the firm's price target on DraftKings to $55 from $65, while keeping a Buy rating on the shares. The analyst noted user growth came in slightly below consensus while revenue was well ahead of expectations despite adverse NFL outcomes during the quarter as the company continued to see strong engagement, retention, and cross-selling in both new and existing states.
Additionally, Craig-Hallum analyst Ryan Sigdahl lowered the firm's price target on DraftKings to $40 from $51 but kept a Buy rating on the shares. The analyst highlighted that headline numbers were better on both revenue and EBITDA, but guidance disappointed. Sigdahl continues to believe building scale fast at this critical time will allow DraftKings to further its lead on brand, technology, database, data science, platform expansion and user experience. While there is increased investor skepticism toward longer-term profitability for the industry, and he expects aggressive marketing/promotions to continue in 2022, the analyst remains confident in the scalability of DraftKings longer term and thinks its Analyst Day on March 3rd will provide more detail on state-level metrics, payback periods and J-curve profitability trends.
Staying on the sidelines with a Neutral rating, Bank of America analyst Shaun Kelley lowered the firm's price target on DraftKings to $25 from $30. The company's fourth quarter revenues reported on Friday were above his and Street estimates, but 2022 revenue guidance trailed expectations while 2022 projected EBITDA losses of $825M-925M were below his "close to Street low" estimated loss of $778M and about 51% below consensus, Kelley noted. Guidance "spooked investors in an already tough tape" and he has lowered his multiple given the broader pullback in unprofitable, high growth stocks, the analyst added. Benchmark, Deutsche Bank and Truist also lowered their price targets on the shares.
RESULTS: On Friday, DraftKings reported fourth quarter revenue of $473M, which was better than the expected $445.3M. Monthly Unique Payers for the business-to-consumer segment increased 32% compared to the fourth quarter of 2020. On average, 2M monthly unique paying customers engaged with DraftKings during each month of the fourth quarter. Average Revenue per MUP was $77 in the fourth quarter of 2021 representing a 19% increase versus the same period in 2020.
DraftKings also raised its 2022 revenue view to $1.85B-$2B from $1.7B-$1.9B, with consensus at $1.9B. The company introduced fiscal year 2022 Adjusted EBITDA guidance. DraftKings expects its adjusted EBITDA loss in 2022 to be between $825 million and $925 million.
PRICE ACTION: In Tuesday afternoon trading, shares of DraftKings have gained about 4% to $18.02.
DraftKings
+0.59 (+3.41%)
MGM Resorts
-0.52 (-1.19%)
Use FLUT
-3.175 (-4.24%)
Caesars
-4.09 (-5.16%)