DraftKings Shares Soar as Q4 Earnings, 2021 Guidance Top Estimates

The U.S.-focused gambling operator DraftKings’ shares jumped over 6% on Friday after it reported better-than-expected earnings in the fourth quarter and raised 2021 revenue guidance well ahead of analysts’ expectations.

Boston-based sports betting platform said its revenue increase of 146% to $322 million in the quarter ended December 31, 2020, up from $131 million during the same period a year ago. That was above Wall Street’s consensus estimates of $232.6 million.

DraftKings raised their forecasts for 2021 revenue in the range of $900 million to $1 billion from the previous target of $750 million-$850 million. That was also above the market expectations of $872.15 million for the year.

Following this optimism, DraftKings shares, which surged over 335% in 2020 and added another 32% so far this year, closed 6.43% higher at $61.53 on Friday.

“Following DraftKings‘ reported Q4:20 results, we are raising our FY21 revenue estimates reflecting upwardly revised management guidance. Our price target goes from $55 to $60 based on higher out-year estimates, driving an upward revision to our DCF. We remain Market Perform given tough 2H:21 compares including a moderating shelter-at-home tailwind and a cautious stance on the upcoming Investor Day,” said Stephen Glagola, equity analyst at Cowen and Company.

Executive Comments

“With a favorable fourth quarter sports calendar and strong marketing execution, DraftKings was able to generate tremendous customer acquisition and engagement that propelled us to $322 million in fourth-quarter revenue, a 98% year over year increase,” said Jason Robins, DraftKings’ co-founder, CEO and Chairman of the Board.

“In the fourth quarter of 2020, we saw MUPs increase 44% to 1.5 million and ARPMUP increase 55% to $65. We are raising our revenue outlook for 2021 due to our expectation for continued growth, the outperformance of our core business, and newly launched states that were not included in our previous guidance.”

DraftKings Stock Price Forecast

Fifteen analysts who offered stock ratings for DraftKings in the last three months forecast the average price in 12 months of $66.07 with a high forecast of $100.00 and a low forecast of $41.00.

The average price target represents a 7.38% increase from the last price of $61.53. From those 15 analysts, 10 rated “Buy”, four rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $66 with a high of $188 under a bull scenario and $13 under the worst-case scenario. The firm gave an “Overweight” rating on the gambling operator’s stock.

“4Q results and 2021 guidance were better than expected. We expect iGaming share to be higher than we previously forecasted. As a result, our ’25e EBITDA rises to $1.1 billion, and our price target goes to $66 accordingly. Reiterate Overweight,” said Thomas Allen, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. Truist Securities raised the price target to $65 from $60. Evercore ISI upped the stock price forecast to $75 from $70. JP Morgan increased the price target to $58 from $48. BofA Global Research raised the price objective to $65 from $60. Bernstein started covering with an outperform rating and set the price target at $71.

Analyst Comments

“We forecast legal US sports betting & iGaming to increase from<$1.5 billion in 2019 to $15 billion in 2025, with COVID-19 increasing the market opportunity as states look for new sources of tax revenue. Forecast DraftKings to maintain top 2 shares, 25% in sports betting and 18% in iGaming in 2025,” Morgan Stanley’s Allen added.

“CAC advantage through its legacy Daily Fantasy Sports (DFS) database and improving marketing efficiency drives 30%/34% 2025/2028 EBITDA margins.”

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