After experiencing a slight weekly decline, but still having gained a substantial 55.66% year-to-date, DraftKings (NASDAQ: DKNG) stock has reasons to be cautiously optimistic; however, the shares could remain relatively stable in the short term after its significant increase at the beginning of 2023.
This is the conclusion of Deutsche Bank analyst Carlo Santarelli in a recent report to clients, which re-affirmed his “hold” rating on the online sportsbook operator with a $15 price target, lower than Friday’s closing price of $17.73.
He believes that the stock is unlikely to see wide swings with quarterly results or broader equity and igaming-market news flow, but rather is likely to remain within a certain range in the near future.
This $15 price forecast on DraftKings stock falls below the Wall Street average of $24.02 and is in line with the 11 analysts who have assigned the stock a “hold” rating. Three analysts have given the stock a “sell” rating and 18 analysts have given it either a “strong buy” or “buy” rating.
DraftKings’ Focus on Cost Reductions Commended
At present, sports wagering stocks are drawing attention due to the NCAA Tournament, and for DraftKings, analysts and investors are focusing on the company’s capacity to reduce costs and reach profitability in 2024.
In February, the Boston-based DraftKings raised its 2023 revenue outlook to $2.95 billion from $2.9 billion and increased its projected adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss to $400 million from $525 million. The company also announced its intention to achieve EBITDA profitability in 2024.
Santarelli said that by trimming marketing and promotional costs, DraftKings is helping to narrow the potential outcomes of their goals. He also pointed out potential catalysts for DraftKings stock, including increased market share in the internet casino and sports betting industry. Such an increase would be aided by some competitors reducing their spending, combined with DraftKings’ internal focus on improving customer acquisition and retention programs.
Promotional Spending Decreasing
After a period of heavy spending to attract clients in 2020 and 2021, it appears that online sportsbook operators, including DraftKings, are now shifting their focus to running profitable businesses.
Santarelli mentioned that the decrease in promotional activities is a positive development, but it is also resulting in slowing handle growth. He believes that this is because the market is now more aware of the frivolous nature of gross gaming revenue (GGR) and total addressable market (TAM) derived from GGR.
He noted that rival FanDuel, the largest online sportsbook operator in the US, is demonstrating an ability to increase hold without losing market share, which DraftKings may be able to emulate.
Overall, Santarelli believes that DraftKings has reasons to be cautiously optimistic, though the stock could remain essentially range-bound in the short term. The company is focusing on reducing costs, targeting profitability in 2024, and enhancing market share, which could bring positive catalysts to the stock.