DraftKings (DKNG) was a favorite among investors a few months back, but things seem to have changed since then. Lately, investors are adding more safe havens to their portfolios instead of speculative assets. Over the last six months, the online sports betting and gambling platform has lost about 62% of its value.
The firm just reported its fourth-quarter results, revealing that revenue increased 47% year-over-year to $473.3 million. The firm also announced robust metric growth, thanks to strong player retention. Despite solid top-line results, DraftKings failed to impress investors, resulting in a drop in the stock price.
Following the Q4 print, a few analysts were concerned about escalating costs and long-term profitability. Daniel Politzer of Wells Fargo is one such analyst who prefers to take a wait-and-see approach for the time being due to the aforementioned issues.
Rising Expenses Remain a Big Concern
The three-star analyst believes that the company is well-positioned to gain market share in the iGaming space but is concerned about DraftKings’ rising operational expenditures. He anticipates the company’s spending to climb at a higher rate compared to its revenue growth.
Politzer writes, “DKNG’s implied 2022 opex will increase 60%+ y/y versus its expected ~49% revenue growth.”
The analyst is also concerned about the company’s near-term EBITDA (earnings before interest, taxes, depreciation, and amortization) growth. Despite the fact that earnings may increase over the next year, Politzer expects that DKNG will not achieve positive EBITDA until 2025.
Based on the above thesis, Politzer forecast revenues of $1.903 billion and $2.597 billion, respectively, for 2022 and 2023. Further, he expects the corporation to post adjusted EBITDA losses of $873 million and $390 million, respectively, for 2022 and 2023.
As a result, Politzer downgraded his rating on DKNG stock to a Hold from a Buy and also decreased his price target to $19.00 from $41.00. This implies just 2.2% upside potential to current levels over the next 12 months.
Wall Street’s Take
On TipRanks, DraftKings stock commands a Moderate Buy consensus rating based on 11 Buys and 10 Holds. As for price targets, the average DKNG stock price forecast of $34.90 implies almost 87.8% upside potential from current levels.
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