ROTH MKM analyst Edward Engel reiterated a Sell rating on DraftKings Inc. (NASDAQ:DKNG), raising the price target to $20 from $18 to reflect North Carolina launching in 1Q24.
DKNG will release its second quarter 2023 results after the close of market trading on August 3, 2023.
DKNG shares continue to surge as investors buy ahead of a 2Q beat/ raise, Engel notes.
The analyst notes that DKNG has steadily reported higher hold rates over the past four quarters, where investors have focused on structural benefits from in-play betting and parlays.
Yet the analyst believes DKNG’s recent hold improvements are more luck driven than investors acknowledge.
State GGR data shows DKNG’s handle share was ~37% in Apr/May vs. ~35% from Sept ’22 to March ’23, the analyst adds.
Promotional data also shows DKNG becoming more aggressive vs. peers in 2Q, while June’s handle share gains came alongside a lower hold vs. peers.
Investors are bullish that DKNG’s MLB offering is boosting summer market share; however, increased promo intensity could limit the upside to a 2Q beat, the analyst cautions.
For 2Q23, the analyst expects DKNG to report OSB hold comparable to the 8.8% reported over 2H23. Alternatively, the analyst notes that 1Q23 hold was ~8.5%, where favorable luck boosted 1Q revenue/EBITDA by $20 million/$15 million.
DKNG’s OSB GGR share also advanced ~300bps vs. 4Q22/1Q23, and Street forecasts now reflect meaningfully positive 2Q EBITDA (analyst models $20 million).
The analyst still believes negative catalysts (Fanatics, Tribes limiting OSB expansion) outweigh the upside to DKNG’s earnings and valuation.
Price Action: DKNG shares are trading lower by 0.08% to $31.22 on the last check Tuesday.
