On Wednesday, Susquehanna maintained a Positive rating on DraftKings Inc. (NASDAQ: NASDAQ:DKNG), while lowering the shares target to $49 from $56.
The adjustment follows the firm's increased full-year revenue and EBITDA estimates for 2024, 2025, and 2026, which take into account stronger than anticipated industry growth and the recent acquisition of JackPocket on May 23, 2024.
The revised 2024 revenue and EBITDA projections stand at $5.03 billion and $485 million respectively. These figures represent a 4% increase in revenue and a 1% decrease in EBITDA compared to previous estimates. The JackPocket acquisition is expected to contribute $82 million in revenue and a $3 million reduction in EBITDA.
The firm's positive outlook on DraftKings is based on several strategic initiatives the company is undertaking. These include efforts to close the online sports betting (OSB) structural hold gap with FanDuel, which is approximately 200 basis points, through product enhancements.
Additionally, DraftKings is focusing on reducing customer friction points to enhance retention rates and leveraging the JackPocket acquisition to boost user growth and cross-promotion with its iCasino offerings, which could lead to higher user growth in the second half of 2024.
The price target reduction to $49 reflects the current lower market multiples, which are influenced by concerns over the potential spread of state tax increases and their impact on the profitability outlook for the online betting industry in various states. Despite this adjustment, Susquehanna reiterates its positive stance on DraftKings' shares.
In other recent news, DraftKings is making headlines with its financial performance and strategic moves. Analysts project robust revenue growth for the company, with estimates showing a rise from $3.67 billion in FY-Dec. 2023 to $7.02 billion in FY-Dec. 2026.
Adjusted EBITDA is also expected to grow from $(151.0) million in FY-Dec. 2023 to $1.54 billion in FY-Dec. 2026. The company is anticipated to achieve positive net earnings starting in FY-Dec. 2024, indicating an improving financial trajectory.
Recent developments also suggest potential tax hurdles for DraftKings. The Illinois Senate passed a budget proposal that could increase online sports betting taxes, which could affect major operators like DraftKings.
Despite this, analysts from firms such as Stifel, BMO Capital, Citi, and JPMorgan (NYSE:JPM) maintain confidence in DraftKings' long-term prospects, retaining their Buy or Outperform ratings.
In addition, DraftKings is making strategic moves to expand its total addressable market (TAM). The acquisition of Jackpocket for $750 million is seen as an opportunity for the company to tap into the $100 billion lottery market. These recent developments underline DraftKings' growth potential and resilience in the face of regulatory challenges.
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