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DraftKings shares were shrugging off the company’s latest earnings report, but bulls found plenty of reasons to cheer.
As MoffettNathanson’s Robert Fishman put it, “it is not really an exaggeration to say almost everything went right for DraftKings” in 2023, and the biggest stumbling block for the company was likely adverse outcomes for some sporting events.
Those negative event outcomes helped drive the company to a surprise loss in the latest quarter. Prior to that, DraftKings
DKNG,
had beaten bottom-line expectations for eight quarters in a row.
But “when CEO Jason Robins lays out in DraftKings’ shareholder letter that 2024 ‘will simply be more of the same,’ we think there are still many ways the company can build upon last year’s momentum and keep winning going forward,” Fishman wrote as he reiterated a buy rating and $52 target price for the stock.
DraftKings’ stock was near flat in Friday afternoon trading following the report a day earlier, but the stock surged 209% in 2023 and was up 26% on a year-to-date basis for 2024.
“Our view is that [DraftKings’] specific positioning in this burgeoning market remains secure as product improvements continue to drive further top-line and bottom-line growth,” Jefferies analyst David Katz said in a note to clients.
Katz flagged the company’s roughly $750 million deal for Jackpocket, an online-lottery company. He thought the deal could help the company pick up new customers and found it to be “strategically sound.”
“It has been our expectation that [DraftKings] would begin generating [free cash flow] in 2024, which would be deployed for product enhancement and growth, which this deal could satisfy, post what we assume is modest dilution in the near term,” he wrote.
He called out that “growth into markets where [online sports betting] and iGaming are not yet legal, but lotteries are, provides efficient acquisition of customers for future engagement.”
Katz has a buy rating and $46 target price on DraftKings shares.
Piper Sandler’s Matt Farrell added that “unfavorable sports outcomes” overshadowed the fourth quarter, but he still saw a bright picture ahead, namely given that the company “has now clearly established a cadence of increasing its full-year outlook as we move throughout the year.”
The latest numbers showed that “core dynamics continue to improve, with acquisition/retention/engagement and structural hold rates trending higher,” in his view. Hold rates represent the portion of betting money that the company retains.
“From our perspective, it doesn’t appear any of the tailwinds are likely to slow down, and with a nice legislative backlog, we see the efficient playbook continuing for the quarters to come,” Farrell continued, while sticking with an overweight rating and a $50 target price.
