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Shares of DraftKings Inc. were surging 15% in Friday trading after the sports-betting company pleased investors with its talk of efficiency.
The company delivered record quarterly revenue Thursday afternoon, and while it still posted a sizable net loss, that loss had slimmed relative to a year before. Additionally, Chief Executive Jason Robins said DraftKings
DKNG,
was working to “accomplish more with the same resources.”
See more: DraftKings stock gains after record revenue and increased 2023 guidance
The latest results sat well with BTIG analyst Clark Lampen, who upgraded the stock to buy from neutral Friday, citing the potential for improving profit trends going forward.
“A divergence in player adoption and marketing cost trends has driven upside vs. Ebitda expectations throughout ’22, and we expect the same pattern to persist in ’23,” he wrote, referring to earnings before interest, taxes, depreciation and amortization.
In his view, that trend indicates “the positive implications of the [fourth-quarter] print aren’t fully reflected in the stock, as the fundamental levers for further beats are in place for ’23/24+.” Additionally, DraftKings “is now in a stronger competitive position with the OSB [online sports-betting] market rationalizing, line of sight to positive cash flow, and room to be more aggressive with growth investment.”
DraftKings won praise from Jefferies analyst David Katz as well.
“The quarter demonstrates [management’s] stated intent to inject appropriate fiscal prudence into its still aggressive growth strategies, which expect to be favorably received by the Street,” he wrote. “Most importantly, the beat and updated guidance support our view that [DraftKings’] specific positioning in the burgeoning market is secure and liquidity should remain ample.”
He has a buy rating and $33 target price on the stock.
Piper Sandler’s Matt Farrell wrote that the company seemed to address investor concerns about leverage in the business model through the latest report.
“While the top-line upside is impressive in the current environment, we believe the profitability dynamics are more impressive,” he wrote. “It is very clear that the company is laser focused on reaching (and potentially exceeding) its profitability targets.”
Farrell has an overweight rating and $18 price target on DraftKings shares.
Needham’s Bernie McTernan wondered if the latest earnings announcement marked the beginning of a new era for DraftKings.
“If [DraftKings] 1.0 was started with the launch of daily fantasy, [and DraftKings] 2.0 started by the overturn of PASPA [the Professional and Amateur Sports Protection Act], we suspect today could be the launch of [DraftKings] 3.0 with a focus of managing near-term profitability,” he wrote.
Admittedly, the company “still has a ways to go in order to be valued on [next-12-month] profitability metrics and [is] one of the last companies in our coverage [to] find religion on this.” But at the same time, he thinks the company’s stated focus on profitability in its shareholder letter “should send a powerful message on management’s focus and increasing desire to scale profits over the near and long-term.”
McTernan has a buy rating and $20 target price on shares of DraftKings.
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