The sports betting scene in the U.S. is on a serious hot streak. Last year, the industry raked in a cool $10.92 billion, which is a jaw-dropping 44.5% jump from the year before. This boom comes as more states give sports betting the green light. In 2023, we saw Kentucky, Maine, Massachusetts, Nebraska, and Ohio all get in on the action, adding a hefty $1.49 billion to the pot.
And the party's not over in 2024. North Carolina just rolled out online sports betting in March, and speculators are loving it. As more states jump into the fray, big names like DraftKings Inc. (DKNG), an American daily fantasy sports betting company, have emerged as attractive investment opportunities.
In fact, DraftKings boasts the distinction of being one of the best-performing stocks in Cathie Wood's flagship Ark Innovation ETF (ARKK) on a YTD basis - not bad, considering it's competing with companies looking to make breakthroughs in gene therapy and artificial intelligence (AI). And now that DKNG stock has pulled back from its highs, it could be a prime opportunity to buy this analyst favorite on the dip.
DraftKings Stock Outperforms
Valued at $35.6 billion, DraftKings (DKNG) is a big player in the online sports betting and casino gaming scene. They run a digital platform where folks can bet on sports or play casino games online, and they've been expanding like crazy across the U.S. and other countries, riding the wave of online gambling legalization.
DraftKings stock has been on a tear over the past year, more than doubling in value over this time frame. Looking back over the last two years, DKNG is up over 200%. But, as the old saying goes, what goes up must come down – and the stock has indeed given back some gains, down about 13.5% from its late-March highs.
At 9.6x sales, DKNG still isn't particularly cheap compared to its rivals in the sports betting business, like Penn (PENN) and Caesars (CZR). However, bulls will argue that the premium is deserved, given the company's leading position in the fast-growing sports betting and online markets. DraftKings is projected for revenue growth of 27% this fiscal year, compared to the single-digit growth forecasts for its competitors.
DraftKings Hikes Guidance
The Q4 earnings report that dropped on Feb. 15 gave investors a bit of a mixed bag. Q4 2023 revenue was up a solid 44% year-over-year at $1.23 billion, but it just missed the mark compared to analysts' expectations of $1.24 billion. Adjusted earnings per share (EPS) beat by a wide margin, though, arriving at $0.29 versus the expected $0.08.
Looking ahead, DraftKings raised its revenue guidance to a range between $4.65 billion to $4.9 billion, upwardly revised from its November forecast of $4.5 billion to $4.8 billion. The company also hiked its adjusted EBITDA guidance to a range between $410 million and $510 million, up from the prior $350 million to $450 million guidance.
The company is due to report earnings again next Thursday, May 2, after the market closes.
DraftKings Turns to Tech for Growth
DraftKings is shaking things up and gearing up for more growth in the online betting world - and to that end, Jason Park, the current CFO, is about to switch gears. Starting May 1, he'll be the new Chief Transformation Officer, focusing on tech upgrades and making operations smoother.
He's also going to handle the integration of Jackpocket, a lottery app that DraftKings is planning to acquire. Taking over the CFO role will be company vet Alan Ellingson, who's been serving under Park as the Senior VP of Finance and Analytics.
Why else is that newly created CTO role significant? Besides the Jackpocket acquisition, it's worth pointing out that DKNG is one of the stocks that Morgan Stanley (MS) analysts recently named with “meaningful” opportunities for margin expansion due to AI. We're sure Cathie Wood would approve.
What's the Analyst Forecast for DKNG?
Overall, the analyst gang is still all-in on DraftKings, with a whopping 25 out of 29 analysts giving it a "Strong Buy" rating. A couple are a bit more cautious with a "Moderate Buy," one's sitting on the fence with a "Hold," and there's just one naysayer with a "Strong Sell."
The average price target for DraftKings stock is $50.18, about 16.3% north of current levels.
Most recently, the stock scored a brand-new “Buy” rating from none other than Goldman Sachs - suggesting the smart money is betting on DraftKings.
In a note accompanying the rating, the analysts seemed to bat down arguments that DKNG is overvalued: “While the stock is up ~65% over the past 9 months, DKNG is trading at a growth adjusted revenue multiple of 0.15x (vs. its historical average of 0.19x and peers currently trading at 0.17x), which is down ~20% over the same time period,” said Goldman.
The brokerage set a price target of $60 for this Cathie Wood standout pick - a Street-high, and about 39% north of current levels.
The bottom line is that while DraftKings stock can sometimes offer investors a volatile roller-coaster ride, analysts think it's worth buckling up. With legal sports betting spreading nationwide, this Cathie Wood fave is primed to keep raking in cash. With profitability on the horizon, investors who can stomach the ups and downs might be able to win big by buying shares on this dip.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
