DraftKings Q1 Beat Driven By High Customer Retention, Market Share Gains; Analysts Optimistic On Growth

Sports betting company DraftKings Inc (NASDAQ: DKNG) reported first-quarter financial results after market close Thursday. The company also raised its full-year revenue and EBITDA guidance. Here's what analysts are saying after the report and guidance increase.

The DraftKings Analysts: Bank of America analyst Shaun C. Kelley has a Neutral rating and raises the price target from $24 to $25.

Benchmark analyst Mike Hickey has a Buy rating and raises the price target from $23 to $26.

JMP Securities analyst Jordan Bender has a Market Outperform rating and a price target of $26.

Susquehanna analyst Joseph Stauff has a Positive rating and a price target of $28.

Oppenheimer analyst Jed Kelly has an Outperform rating and raises the price target from $28 to $30.

Needham analyst Bernie McTernan has a Buy rating and a price target of $28.

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The Analyst Takeaways: Kelley said DraftKings reported results that were better than expected, with strong customer retention and monetization.

“DKNG is showing meaningful progress to key milestones, namely operational leverage, profitability, strong product and share gains,” Kelley said.

DraftKings raised guidance for revenue and EBITDA, which Kelley said was “encouraging.”

“Our sense is strong engagement benefited from product enhancements helped after the end of the NFL season.”

Hickey said DraftKings showed strong first-quarter results.

“Retention and engagement player metrics were higher than expected and delivered market share gains,” Hickey said.

Bender said the revenue beat came from favorable sports results and also company operations.

“The beat was supported by favorable sporting outcomes, but it continues to see structural improvements to its business model, leading to higher retention rates and monetization, lower levels of promotions, and market share gains in the quarter,” Bender said.

Bender added that DraftKings is seeing a market share increase.

“We believe DKNG is benefitting from scale, creating a snowball effect and allowing it to reinvest back into the business to drive greater retention. The improvements, along with cost savings, are flowing through to the bottom line.”

Stauff said DraftKings could have a 24% CAGR from 2022 to 2025, which is higher than many software-as-a-service companies used in the analysts’ price target multiples.

“We think continued strong user growth is a high probability event which DKNG will harvest into higher profit expectations in 4Q,” Stauff said.

Kelly said a strong first quarter with higher engagement outside the football sector was “very encouraging.”

“Product enhancements are generating greater usage outside of football, where better engagement increased the revenue/EBITDA outlook by $195million/$80million, respectively,” Kelly said.

McTernan said DraftKings has now reported strong financial results in back-to-back quarters.

“Encouragingly, DKNG now expects to be roughly breakeven on adj. EBITDA in 2Q23E, which we think is a major milestone for the company on their way to adj. EBITDA positive in ‘24E,” McTernan said.

The analyst said results from launches in Massachusetts and Ohio showed strong initial market share for DraftKings.

DKNG Price Action: DraftKings shares are up 15.7% to $24.66 on Friday, making new 52-week highs.

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