DraftKings Momentum Is There, But Caution Warranted, Says Analyst

There’s no denying investors were enthusiastic most the 2023 outlook revealed lowest hebdomad past DraftKings (NASDAQ: DKNG) as it sparked one of the topper intraday performances on track record past the stock, but at to the lowest degree 1 psychoanalyst advises caveat on the sports wagering equity.

In a new line to clients, Stifel psychoanalyst Jeffrey Stantial lauds DraftKings for its improved 2023 guidance and management’s increasing accent on reining in costs. Last week, the sportsbook operator raised the midpoint of its 2023 revenue outlook to $2.95 one million million from $2.9 1000000000 patch altering the midpoint of its 2023 earnings before interest, taxes, depreciation, and amortization (EBITDA) loss to $400 trillion from $525 million.

In retrospect, we are not surprised to see shares oppose favorably to management’s tone up on be discipline, precondition similar trends in other high-growth loss-making businesses. However, with DKNG rapidly forthcoming post-stimulus era highs, we cogitate a more conservative outlook remains seize despite our constructive vista on capital punishment & potency direction upside,” wrote Stantial.

The analyst maintained a “hold” rating on DraftKings patch lifting his price mark to $21 from $17. The unexampled forecast implies modest upside from the February 17 close.

Parlay Progress Pushing DraftKings Higher

DraftKings also told analysts and investors it could be break-even or profitable on an EBITDA cornerstone at some head inward 2024. Among the reasons for the buoyant outlook is improve product mix, including same-game parlays (SGPs).

A territory mastered by FanDuel, SGPs lure bettors with bounteous odds and the convenience of all legs beingness decided o'er the course of action of simply single event. The wagers are essentially fliers or drawing tickets and thus, stinting for operators.

“As discussed above, product impelled structural improvements to bear place were a paint number one wood of Q4A outperformance. This primarily reflects improving parlay penetration, inwards particular proposition same-game, with DraftKings’ parlay unify improving +800bps Y/Y during the quarter. On a full-year basis, improving parlay incursion drove ~70bps of cited ~120bps keep grade expansion, with optimized trading factoring for ~30bps and favourable summercater outcomes for ~20bps,” added Stantial.

DraftKings management also told analysts that it’s making come along on in-house SGP offerings, indicating that in the future, the company may follow able to farther trimness costs past reducing dependance on third-party technology.

Consumer Pullback Could Pinch DraftKings, Rivals

With pandemic-era stimulus fading, DraftKings and other gaming companies could follow vulnerable to a potentiality 2023 slowdown in consumer spending.

“While we’ve heard some concerns on possible consumer pullback here precondition the depression win-rate, management cited cypher signs of related roil so far patch they trust similar trends contain for best-in-class FanDuel. While encouraging, we trust this is a danger worth continuing to monitor presumption the semi-fixed nature of gaming budgets,” concluded Stantial.

While DraftKings management didn’t mount extensively on consumer discretional issues, signs are mounting that consumers are grading back. For example, Walmart (NYSE: WMT) CFO St. John Rainey said earliest today that consumers are allay below pressure level – comments that sparked a sell-off in consumer equities, including gaming names.

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