DraftKings Q4 Results Could Be Pinched by Rough November

Posted on: January 5, 2024, 05:11h. 

Last updated on: January 8, 2024, 11:39h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

A strong November by U.S. sports bettors could weigh on DraftKings’ (NASDAQ: DKNG) fourth-quarter results, according to Benchmark analyst Mike Hickey.

DraftKings
Employees at DraftKings headquarters. An analyst said the operator’s fourth-quarter results could be hampered by reduced hold in November. (Image: CNBC)

In a note to clients today, Hickey wrote that favorable results for bettors in the 11th month of the year may have sapped DraftKings’ hold percentage by 150 basis points (1.5%). If accurate, that reduced hold rate could weigh on the operator’s fourth-quarter revenue and adjusted earnings before, interest, taxes, depreciation, and amortization (EBITDA) by $50 million and $35 million, respectively.

The analyst based that assumption on DraftKings’ guidance calling for 2023 EBITDA loss of $105 million on revenue of $3.695 billion, which was issued last November. While December data isn’t fully available, Hickey added that DraftKings’ hold percentage likely normalized in the 9% range in the last month of 2023, indicating November was probably an anomaly.

He rates shares of the sportsbook operator “buy,” with a $41 price target, which implies upside of about 24% from today’s close.

DraftKings 2024 Outlook Remains Strong

The gaming company is scheduled to deliver results for the October through December period on Feb. 15 after the close of U.S. markets. It has a knack for lifting top and bottom line forecasts when it delivers quarterly results – something analysts and investors will likely be watching for next month.

Boston-based DraftKings forecasts a positive 2024 EBITDA of $350 million to $450 million on sales of $4.5 billion to $4.8 billion. That implies the gaming company could be profitable on an EBITDA basis for most — if not all — of 2024, while easily shattering topline records.

For 2025, the online sportsbook operator said it expects revenue in the mid-$5 billion range on adjusted EBITDA of $900 million, with those figures growing to $6.2 billion and $1.4 billion, respectively, the following year. In 2028, the operator expects to notch sales of $7.1 billion on EBITDA of $2.1 billion.

There may be some burden on DraftKings to deliver the goods in terms of upped guidance, because after the stock more than tripled last year, it shed 7.50% this week, as investors booked profits in the previously high-flying shares.

Competition Comments Could Be Key

With the reduced November hold percentage in the rearview mirror, one of the other issues analysts and investors are apt to focus on with regards to DraftKings is the operator’s ability to retain and grow market share amid a flurry of new competition in the sports wagering space.

Data indicates ESPN Bet and Fanatics are off to solid starts in the states in which they’re offering online sports wagering. But the numbers also confirm incumbents such as DraftKings and FanDuel aren’t yet feeling much pressure from new rivals.

That sentiment has been echoed by DraftKings, which said it welcomes new competitors, and sees that as a sign of a growing, maturing industry.