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DraftKings (NASDAQ:DKNG) is extending its lengthy slide Friday, even after the online sportsbook operator posted first-quarter results that beat estimates and lifted its 2022 revenue outlook.
In midday trading, the shares are off 6.1%, extending the one-month slide to 24.2%. The gaming stock shed 72.17% of its value over the past year. The ongoing weakness in DraftKings stock arrives despite the gaming company boosting its 2022 revenue guidance.
Earlier today, the operator reported first-quarter sales of $417 million, topping the consensus estimate of $412.01 million. DraftKings said it expects 2022 revenue of $1.92 billion to $2.02 billion on an earnings before interest, taxes, depreciation and amortization (EBITDA) loss of $760 million and $840 million. The company’s previously issued forecast called for a loss of $825 million and $925 million on turnover of $1.85 billion to $2 billion.
At least for today, DraftKings investors aren’t impressed by the lifted outlook, despite the facts that the company says it doesn’t factor its upcoming debut in Ontario, Canada, and the acquisition of Golden Nugget Online Gaming (GNOG), which was completed on Thursday.
Beating Low Expectations
It’s usually a good thing when companies beat estimates and guide higher. But today’s sell-off in DraftKings shares could be attributable to poor sentiment currently permeating the gaming equity space and a case of investors not being impressed about the operator topping low estimates.
While 1Q22 resuts exceeded low expectations, even amid a poor hold environment, DKNG still remains far from reaching profitability which we see limiting valuation in the current market environment,” said Roth Capital analyst Edward Engel in a note to clients today.
He rates DraftKings “neutral,” with a $19 price target. That implies upside of nearly 32% from the May 5 close.
“Our $19 target price is reached by applying a 15x multiple on our 2030 EBITDA forecast of $1.1bn, discounted back annually by 9%,” adds Engel. “Factors that could cause DKNG shares to exceed our price target include higher than expected market share, faster than expected progress towards online gaming expansion and better than expected regulatory conditions in new markets.”
DraftKings’ geographic footprint is steadily increasing, which could be a long-term positive, as analysts and investors are clamoring for more opportunities to gain market share and generate top line growth.
The operator is live with sports wagering in 17 states, combining for 36% of the US population and live with iGaming in five states, representing approximately 11% of the US population. Online casinos offer better margins and stickier customers than sports betting, and DraftKings is increasing its profile in the space via the GNOG deal.
“Three of the US jurisdictions where DraftKings has the potential opportunity to operate via a market access agreement or direct license — Maryland, Puerto Rico, and Ohio — have authorized mobile sports betting,” said the company in a statement. “These three jurisdictions represent approximately 7% of the U.S. population and bring the percentage of the population where DraftKings expects to offer legalized mobile sports betting to approximately 43%, pending licensure and regulatory approvals.”