DraftKings (NASDAQ: DKNG) steps into the earnings confessional on Nov. 7 and when the sportsbook operator delivers third-quarter results, some analysts expect it will extend its precedent of beating estimates and while lifting future forecasts.
Stifel analyst Jeffrey Stantial is part of that group, noting the game company should slightly beat third-quarter estimates and that it’s likely to boost 2024 guidance. Since becoming a standalone public company more than four years ago, DraftKings has consistently topped analysts’ earnings and revenue estimates while increasing its annual guidance when delivering quarterly results.
Based on our analysis of state reported data & anecdotal checks, we expect sport outcomes were a modest tailwind to Q3E due largely to record week two NFL hold,” wrote Stantial in a new report to clients.
Good fortune by bettors in weeks six and seven of the NFL season could be a headwind to DraftKings’ fourth-quarter results, but Stantial maintained a “buy” rating on the stock with a $48 price target. That implies upside of 35.7% from current levels.
DraftKings Could Unveil 2025 Guidance
When DraftKings delivers results for the September quarter, fewer than two months will remain in 2024, meaning it could be an ideal time for the operator to debut its financial outlook for next year. There are no guarantees that will happen, but Stantial believes if it does, the operator will formalize an estimate of 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA) of $900 million to $1 billion.
That was mentioned by the company when it reported second-quarter numbers in August and that forecast did not include potential benefits from a now scrapped surcharge on winning sports wagers in high tax states.
Should the company set $900 million to $1 billion as baseline 2025 EBITDA, that could provide some wiggle room for upward revisions over the course of next year, which could benefit the stock.
“For the stock, we see modestly attractive risk-reward heading into the print, though market share seasonality shifts negative shortly thereafter,” added Stantial. “Longer-term, we remain highly constructive as strong underlying user acquisition, retention, & monetization fundamentals, compounding scale advantages, & Jackpocket cross-sell uplift support upside to out-year free cash flow.”
DraftKings Adding Market Share
Though he didn’t get into specifics as to which operators it’s coming at the expense of, Stantial said DraftKings has recently been adding both iGaming and online sports wagering market share. The analyst noted internet casino data in Michigan and New Jersey indicates DraftKings has boosted share in that space.
“DraftKings appears the primary sequential share winner since Q2 earnings – partly due to sports seasonality. We estimate DraftKings gained +2.4% handle share from July to September, comparing to +3.0%/+7.4% for the comparable 2023/2022 periods,” noted Stantial.
The analyst also said DraftKings is proving adept at customer retention, though new client acquisition is tougher to model for and could include the need for elevated promotional spending.
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