Analyst Declares DraftKings as Leading Online Gaming Stock

DraftKings (DKNG) Emerges as Top Choice for Online Gaming Investors

Posted on: November 4, 2023, 08:25h.

Last updated on: November 4, 2023, 08:25h.

DraftKings market share
DraftKings stock highlighted at the Nasdaq market site in New York. An analyst said the stock is the best way to play the online gaming industry. (Image: X)

The leading online gaming equity, DraftKings (NASDAQ: DKNG), has seen remarkable gains, increasing by 26.69% in the past week and 196.31% year-to-date.

Macquarie analyst Chad Beynon has recognized DraftKings as the best pick for investors interested in the online gaming market. In his latest note, he reconfirmed an “outperform” rating on the shares and raised the price target from $38 to $42, indicating potential upside of 24.44%.

DraftKings stands out with its impressive earnings before interest, taxes, depreciation, and amortization (EBITDA) for the rest of 2023 and 2024. Additionally, its dominant position in domestic internet gross gaming revenue (GGR) contributed to a surge in its stock price, which increased by 16.46% with high trading volume following the release of its third-quarter results.

DKNG reported another strong revs/EBITDA beat and raise in 3Q, driven by OSB/iGaming share gains as the operator took the pole position for US Online GGR in 3Q,” wrote Beynon. “During the quarter, DKNG experienced stronger retention/engagement, higher structural hold, and more efficient marketing/promo spend, partially offset by game outcomes given a tough YoY comp.”

DraftKings surprised investors by revising its EBITDA loss for 2023 to $105 million, lower than the previous estimate of $205 million. The company now expects revenue of $3.695 billion, up from the previous forecast of $3.5 billion.

DraftKings Sets High Expectations for Future Growth

In 2024, DraftKings forecasts EBITDA of $350 million to $450 million on sales of $4.5 billion to $4.8 billion, potentially making it the company’s most successful year on record.

Based on this optimistic outlook, Beynon raised revenue estimates for 2023 through 2025, expecting $3.7 billion, $4.59 billion, and $5.63 billion, respectively. If DraftKings continues to outperform expectations, it will solidify its position as the top choice for investors seeking exposure to the US online gaming market.

“We view DKNG as the best way to play the bourgeoning US Online market given its first-mover advantage, strong brand recognition with the younger demographic, and superior tech,” added Beynon.

Beynon highlighted that DraftKings and its competitor, FanDuel, have established a dominant position in the US online sports wagering space due to factors such as brand recognition and first-mover advantage.

Potential for Further Growth

Although DraftKings is still a relatively young publicly traded company, Beynon believes it has only scratched the surface of its potential. He expects the company to continue delivering double-digit revenue growth in the coming years.

“DraftKings is just starting to realize the benefits of its unparalleled national scale, which is evident in its operational efficiencies. The company achieved a flow-through margin of 38% in 3Q and its 2024 guidance implies a 53% flow-through (midpoint) and meaningful positive free cash flow (FCF). Given these trends, we believe DKNG is well-positioned to maintain its leadership position by continuously reinvesting in its business and technology,” concluded the analyst.

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