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DraftKings Stock: More Volatility on the Menu in 2022
Stock Analysis & Ideas

DraftKings Stock: More Volatility on the Menu in 2022

Investors reacted with dismay to DraftKings’ (DKNG) latest quarterly results, sending shares down by 22% in the subsequent session.

The fact the company generated more revenue than anticipated and posted a narrower loss than the Street had factored in, mattered little. DraftKings warned adjusted EBITDA for 2022 will show a $825 million to $925 million loss as the company enters new states (New York and Louisiana) and customer-acquisition costs will take their toll. Given consensus had anticipated an adjusted EBITDA loss of only $573 million, providing a dismal profit metric in the current risk-off environment is a big no no, as far as investors are concerned.

While Deutsche Bank’s Carlo Santarelli attributes the share price drop to the disappointing adjusted EBITDA guidance, he also finds the net revenue guidance “to be somewhat lighter than expected,” despite the company raising the forecast from between $1.7 billion to $1.9 billion to between 1.85 billion to $2 billion

“While actual results are likely to surpass the high end, given the 2Q22 launch in Ontario and the eventual launches of OSB in Maryland and Ohio, thereby rendering the guidance moot,” says the 5-star analyst, “We believe the incremental net revenue uplift is conservative, or perhaps indicative of a modest pullback in the organic growth, on account of an effort to tame promotions.”

Santarelli does anticipate “certain buckets of costs” will start to “plateau.” That said, to be able to turn a profit, the company will need to “extract marketing expenses,” and at the same time keep up the revenue haul. And the probability of cutting back on marketing spend is rather low, considering 2022 is set to be a heavy investment year.

Accordingly, Santarelli thinks that for now DKNG will remain a “trading stock, more influenced by market sentiment, bull / bear debates, and themes within the gaming sector.”

With more volatility likely, Santarelli rates DKNG shares a Hold, while cutting the price target from $27 to $19. (To watch Santarelli’s track record, click here)

The rest of the Street has a far more optimistic outlook where the share price is concerned; going by the $38.42 average target, shares will change hands for a 122% premium a year from now. Overall, the stock has a Moderate Buy consensus rating, based on 11 Buys, 8 Holds and 1 Sell. (See DraftKings stock forecast 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.

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