DraftKings Price Target Slashed by One Analyst, Another Sees Disappointing Q4

Time Stamp: December 2, 2021 12:34 PM

Mired in a multi-month slump, DraftKings (NASDAQ:DKNG) continues contending with increasingly tepid or overtly negative commentary from analysts covering the company.

DraftKings
Analysts on CNBC discuss DraftKings investments, as seen in the graphic above. DraftKings price target was pared by one analyst. Another says the company is likely to miss fourth-quarter estimates. (Image: CNBC)

That trend is continuing today as Benchmark analyst Mike Hickey trims his price target on the online sportsbook operator to $50 from $70 while reiterating a “buy” rating on the shares. While that revised price projection implies upside of 57.4 percent from the Dec. 1 close, it arrives as DraftKings shed 36.27 percent over the past month and with the shares residing 57.57 percent below the 52-week high.

Hickey notes that the broader market is effectively pricing in concerns about the spread of the omicron variant of the coronavirus and its potential impact on the sports world. DraftKings became a publicly traded company in April 2020 in the midst of the worst shutdown in US sports history. Thus far, there’s been no commentary from the major domestic sports leagues regarding a possible suspension of play because of omicron.

Additionally, the analyst points to the Federal Reserve’s plans for 2022 interest rate hikes, which could weigh on unprofitable, high-growth companies such as DraftKings.

Hickey acknowledges that the initial COVID-19 surge last year lifted DraftKings client engagement and paved the way for regulatory momentum as more states rushed to legalize sports wagering in a bid to bolster revenue streams.

Gloomy Take on Q4

In more bearish commentary on DraftKings, Roth Capital analyst Edward Engel notes that high promotional spending is eroding online operators’ fourth-quarter net gaming revenue (NGR),

We believe elevated sportsbook hold in November offset low hold in October, given more favorable sports outcomes, but channel checks indicate that promotions remain high,” said Engel. “Unless sports outcomes boost hold again in December, we see downside risk to DraftKings’ implied 4Q revenue guidance of $417-457M ($437M midpoint vs Street at $440M).”

The analyst, who previously pondered the possibility of a rough fourth quarter for DraftKings, notes the company’s guidance for the last three months of the year implies year-over-year revenue growth of 105 percent. But recent NGR data in marquee markets such as Colorado, Michigan, Pennsylvania, and Virginia could miss that percentage.

Engel initiated coverage of the online sportsbook operator last month with a “sell” rating and a $41 price target. His price forecast is down to $34.

2022 Could Be Tricky for DraftKings

The Roth analyst sees downside risk to 2022 guidance DraftKings could offer due to the likelihood it will fall short of fourth-quarter expectations.

He adds that DraftKings’ 2022 outlook doesn’t include closing the acquisition of Golden Nugget Online Gaming (NASDAQ:GNOG) and new state launches, such as Louisiana, Maryland, and New York. However, Engel’s 2022 DraftKings forecast includes those factors and is simply in line with management estimates.

“DKNG’s ongoing multiple contraction implies Buy-side expectations are moderating. But the company has yet to experience a cycle of downwards estimate revisions,” he adds.

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