Let’s not beat about the bush too much; like countless others, shares of DraftKings (DKNG) have taken a good thrashing over the past year – one that has shaved 65% off the stock’s valuation.
Investors could therefore use some comforting data to help reassure the opportunity is alive and kicking for a company operating in the rising OSB (online sports betting) and iGaming industry. And DraftKings appeared to do just that at its recent Investor Day.
The company increased what it thinks is its TAM (total addressable market) in the OSB space from the prior $22 billion to $26 billion and raised the iGaming TAM from $40 billion to $48 billion.
Needham’s Bernie McTernan is not that surprised with this development. “Given the strong growth in NJ, especially following NY and limited cannibalization, this TAM increase was somewhat expected,” the analyst noted. McTernan actually thinks that going by the TTM (trailing twelve month) NJ data, the TAMs are even higher; $27 billion for US OSB and $52 billion US iGaming.
There were other promising stats too. While compared to last year’s investor day, data on customer retention mostly remained the same, and there was an improvement in revenue retention, which exhibited 122% retention from year 1 to year 2 vs. last year’s 108%.
The company puts this development down to “product improvement” and given 2022E will be the first full year of the “cross over” to SBTech, McTernan notes the finding could be “intriguing” for future results.
“We believe retention is the key metric for the financial profile of the industry to improve,” the analyst went on to say, “And we believe this data point from DKNG is encouraging and also expressed by other operators in the space like CZR.”
McTernan also thinks the path to profitability is set to pick up pace. While still expecting the company to breakeven in 2024E, he now anticipates a “steeper trajectory” of adj. EBITDA in 2025E and 2026E, reaching $2 billion in adj. EBITDA in 2027E.
So, good for DraftKings, but what does it all mean for investors? McTernan reiterated a Buy rating, while his $32 price target suggests shares will be changing hands for a 55% premium a year from now. (To watch McTernan’s track record, click here)
Turning now to the rest of the Street, where the analysts are split down the middle on this one. The stock’s Moderate Buy consensus rating is based on 10 Buys and 11 Holds. That said, there are plenty of gains anticipated; going by the $34.32 average price target, shares will climb ~82% higher over the coming months. (See DraftKings stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
