Macquarie lowers DraftKings price target, maintaining its appeal
Posted on: May 12, 2025, 10:45h.
Last updated on: May 12, 2025, 11:10h.
Todd Shriber @etfgodfatherRead MoreFinancialGaming BusinessMergers and Acquisitions Beenynon Talks Bull on DKNG Despite Trimmed Price Target*
Shares of DraftKings (NASDAQ: DKNG) soared on Monday, riding the waves of other gaming stocks lifted by promising trade talks between the US and China. However, Macquarie analyst Chad Beynon, despite lowering his price forecast to $53 from $55, remains optimistic about the prospects of this gaming giant.
In a recent memo to clients, Beynon acknowledges that DraftKings scaled back its 2025 earnings and revenue guidance. But he stresses that powerful combinations—rising structural hold and winning market share gains—make DKNG astadying contender for impressive top-line and bottom-line outperformance.
Chad Beynon's Take on DraftKings
Despite a hiccup due to the NCAA Men's Tournament in March, the analyst notes positive aspects worth keeping an eye on. "Handles continue to outpace the market, a testament to DKNG's strong gameplay and strategy," observes Beynon.
Beynon continues with an "outperform" rating on the stock, aligning with 28 other analysts' "buy" or "strong buy" ratings. His $53 price target matches the Wall Street consensus, pointing to a potential upside of 41% from the present levels.
DraftKings, a Stock With a Hint of Value
You might think of DraftKings as a purely growth stock, but Beynon sees signs of value. According to him, DraftKings' Expected EBITDA CAGR of 22% and 117%, respectively, from 2024 through 2027, paint a picture of a discounted name.
He asserts that DraftKings' value drivers are surpassing expectations, its product enhancements are improving efficiency, and it's attracting more players through acquisitions such as Jackpocket. Despite not being available everywhere DraftKings offers online sports betting, Jackpocket users tend to be sticky and can easily be converted into sports wagering customers.
Analyzing DraftKings Quantitatively
The first quarter saw some weakness for DraftKings, with its quantitative metrics appearing mediocre. That said, the stock exhibits strong historic and/or forecast growth, as stated by Macquarie.
Traditional profitability metrics like ROA and ROE are an area for improvement, as the stock is not yet efficiently converting investments into earnings. However, it's essential to remember that the growth stage of a company can sometimes render these kind of metrics less relevant.
Key Insights:
- Strong Growth Drivers: Improving structural hold and steady market share gains position DKNG for impressive top and bottom line performance.
- Expanding Database: DraftKings' customer base rose to 10.4 million, with MUPs surging 28% YOY to 4.3 million.
- Regulatory Developments: DraftKings is targeting new markets, including Missouri, to broaden its footprint.
- Operational Improvements: Handles grew by 16% YoY in Q1 2025 while Sportsbook hold percentages improved due to operational efficiency.
While potential challenges like volatile outcomes and lower-spending users from acquisitions like Jackpocket are present, overall trends suggest DraftKings remains well-positioned for sustained growth.
In the light of Beynon's analysis, DraftKings' strong growth drivers and operational improvements position it for impressive top-line and bottom-line outperformance, making it a potentially lucrative investment in the technology-driven finance and sports sectors. Despite some quantitative metrics showing weakness in the first quarter, DraftKings' expanding database and regulatory developments indicate a promising future, suggesting it remains well-positioned for sustained growth in the business world.
