DraftKings Crowning Achievement: Leverage

DraftKings NASDAQ: DKNG Q4 report was everything the market could have hoped for and more. Adding new jurisdictions, deepening penetration and increasing monetization have given the company leverage and shortened the time until profitability. The news has the stock up more than 9.0% in premarket action, confirming a bottom that could quickly turn into a reversal. Based on the analysts' take, this is news to rally on.

At least 5 of the 31 analysts covering this stock have issued some form of commentary, but only 1 has altered its rating or price target. That is an upgrade to Buy from Hold from BTIG and it expects DraftKings to consolidate its leadership position in the OSB industry. 

BTIG’s new price target is $34 or 35% above the pre-release price. This is well above the consensus estimate which has been firming after a year of downward pressure. This activity marks a bottom in analyst sentiment if not the stock price, and the stock price echoes the shift.

Assuming this trend continues, shares of DraftKings could easily break out of its recent trading range and begin trending higher. Analysts at Jeffries, Roth MKM, Piper Sandler and Morgan Stanley view the report as better than expected and affirming the bull case for the stock. 

DraftKings Wins Big In Q4, Guides For Profits In 2024

DraftKings numbers say everything the market needs to hear. The company grew revenue by 80.8% YOY to $855 million, beating the MarketBeat.com consensus by 700 basis points. Increased user count and monetization drove the gains; monthly unique players increased by 31%, and a 42% increase in revenue per user.

The leverage also resulted in a better margin; the company’s GAAP operating loss narrowed by 37% versus last year to come at a mere 27% of revenue compared to the previous 77%. 

The best news in the report is the guidance which was increased for the current year but came with a better margin outlook and a forecast for profitability in 2024. Given the apparent strength in operations, this is ahead of schedule and may be a cautious forecast. 

“In the fourth quarter, we grew revenue by 81% versus last year and delivered Adjusted positive EBITDA in October and for the quarter when adjusting for our launch costs in Maryland and Ohio. Moving into 2023, we will continue to drive revenue growth and focus on expense management to accelerate our Adjusted EBITDA growth.

We have already taken several actions that resulted in an increase to our revenue guidance and significant improvement in our Adjusted EBITDA guidance,” said Jason Robins, DraftKings’ Chief Executive Officer and Co-founder. 

What To Expect In 2023 From DraftKings

The outlook for online gambling and sports betting is good for 2023. The data coming from Super Bowl weekend suggests the gaming industry could see 30% gains this year. That should equate to another year of levered growth for DraftKings which has the added tailwinds of expanded availability and deepening penetration of existing markets. 

The chart suggests this stock is ready for a complete reversal. The market has traced out a Double-Bottom pattern and is on the verge of breaking the baseline in premarket action. Assuming the market follows through on this signal, shares of DraftKings could move up into the $30 range before the end of spring.