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DraftKings Stock Investors Pull Back After Q1 Earnings: What Do Analysts Think?

Draftkings Inc (NASDAQ: DKNG) shares were retreating Monday after the company reported a better-than-expected loss in the first quarter and raised its full-year guidance.

05/10/2021 12:57

Draftkings Inc (NASDAQ:DKNG) shares were retreating Monday after the company reported a better-than-expected loss in the first quarter and raised its full-year guidance.

For the first quarter, DraftKings reported a 36-cent EPS loss on Friday, beating the 41-cent loss analysts expected. DraftKings also reported $312 million in revenue, ahead of the $236-million consensus analyst estimate. Revenue was up 253% from a year ago.

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DraftKings reported 1.5 million monthly unique paying customers, beating Wall Street expectations of 1.3 million. Average revenue per monthly unique paying customer was $61, up 48% from a year ago.

DraftKings also raised its full-year 2021 revenue guidance from an old range of between $900 million and $1 billion to a new range of between $1.05 billion and $1.15 billion.

The negative market reaction may be in part because DraftKing’s impressive growth came at a high cost given the company’s first-quarter sales and marketing costs quadrupled year-over-year to $228.7 million. 

DraftKings Analysts On Impressive Growth Numbers: Canaccord Genuity analyst Michael Graham said DraftKings is well-positioned to continue its growth momentum by expanding to more states in 2021.

“We are encouraged by the favorable industry backdrop, as OSB legalization progress has accelerated across the country, and numerous recent strategic partnerships and acquisitions are helping DraftKings develop its media strategy and enhance its product offering,” the analyst said. 

The U.S. online sports betting market is fiercely competitive, he said, adding that DraftKings has an opportunity to continue to generate significant revenue growth for the foreseeable future.

Credit Suisse analyst Benjamin Chaiken said Monday’s weakness is a buying opportunity for long-term investors.

“All in all, we think the weakness in the shares today is an opportunity, given the differentiation of the DKNG product, positive event path in NY (DKNG a leader) and Canada (which likely comes back to Senate in 2-3 weeks), and the savings from fully integrating the SBTech platform,” the analyst said. 

The addition of more social elements to the DraftKings app, including the ability to connect to friends and follow celebrities and influencers, differentiates the product from competitors, according to Credit Suisse. 

BofA On DraftKing's Mounting Losses: Bank of America analyst Shaun Kelley said “growth and losses continue” for DraftKings.

“It’s still pretty difficult to identify meaningful gross margin or marketing cost leverage at this point in DKNG’s growth curve, and we are now modeling higher losses in 2021 and 2022,” the analyst said. 

Some of DraftKings’ selling pressure on Monday represents investors taking profits after the company’s huge run since the beginning of 2020, but investors shouldn’t ignore the company’s profitability struggles, he said. 

DraftKings Ratings, Price Targets:

  • Canaccord Genuity has a Buy rating and $80 target.
  • Credit Suisse has an Outperform rating and $85 target.
  • Bank of America has a Neutral rating with a price target lowered from $70 to $60.