DraftKings, a prominent player in the online sports gambling industry, is currently facing stiff competition, rising customer acquisition costs, and profitability pressures. This has led to varying opinions among analysts regarding the appropriate course of action for investors.
Alistair Johnson, an analyst at BNP Paribas, recently downgraded shares of DraftKings to Underperform from Neutral. He assigned a $28 price target to the stock. In contrast, Jeffrey Stantial, an analyst at Stifel, upgraded DraftKings to Buy from Hold and raised the price target to $45 from $40.
According to FactSet’s survey of 35 analysts, a majority of 27 analysts rate the stock as a Buy, while seven analysts suggest holding it. Only one analyst, Alistair Johnson, holds a sell recommendation.
Despite recognizing the challenges ahead for DraftKings, both BNP Paribas and Stifel analysts hold differing opinions on the stock’s outlook. Johnson sees the upcoming headwinds as a reason to divest from the stock, while Stantial views them as an opportunity to buy.
Johnson emphasized that DraftKings must curtail its investment in customer acquisition and retention in order to achieve its profit margin targets. The online sports gambling industry is notorious for its high costs. Remarkably, DraftKings reported its first positive quarter of adjusted earnings before interest, taxes, depreciation, and amortization in the second quarter of its 2023 fiscal year after going public in 2020.
In conclusion, DraftKings faces significant competition and profitability hurdles. Analysts’ recommendations diverge, with some suggesting selling the stock and others advocating buying opportunities. The path forward for DraftKings involves balancing investment cutbacks with the pursuit of profit margins in the challenging online sports gambling industry.
The Rise of Flutter Entertainment in the US Online Gambling Market
In recent years, the legalization of online sports betting in various states has presented both opportunities and challenges for companies in the gambling industry. One such company that stands out is Flutter Entertainment, the parent company of FanDuel, a widely popular U.S. sports betting app.
According to Johnson, an expert in the field, Flutter has emerged as a frontrunner in the U.S. online gambling market, surpassing its competitor DraftKings. Despite facing structural disadvantages, Johnson believes Flutter’s strategic efforts to lower marketing costs will not be sufficient to offset its strong competition with Flutter, resulting in a potential loss of market share.
Interestingly, Flutter Entertainment is set to make its debut on the New York Stock Exchange later this month, reinforcing its dominant position in the industry. The anticipation surrounding this listing has caused some concerns among analysts, such as Stifel analyst Stantial, who predicts potential short-term obstacles for DraftKings’ stocks.
However, Stantial argues that any near-term setbacks for DraftKings are temporary and can be attributed to factors like ESPN Bet promotions and seasonality within the sports industry. In the long run, Stantial believes that investors will shift their focus back to the fundamentals of the company, highlighting positive factors such as healthy growth in same-state handle, expansion of structural hold rates, disciplined marketing and promotional activities, and efficient cost management. These factors raise optimism about DraftKings’ future profitability and make it an attractive investment option.
Despite experiencing a slight decline of 0.7% on Friday to $37.30, DraftKings shares have shown a remarkable increase of 5.8% year-to-date and an impressive 168% rise over the past 12 months.
In conclusion, Flutter Entertainment’s rise in the U.S online gambling market poses challenges for competitors like DraftKings. However, experts believe that DraftKings can overcome these obstacles and leverage various opportunities to maintain a strong position in the industry.
