Analysts at Canaccord Genuity (TSX:CF, LSE:CF) have upped their price target for Draftkings Inc (NASDAQ:DKNG) after the sports gambling company hit a home run with its first quarter results.
The analysts noted that DraftKings’ 1Q revenue and profitability had both come in well ahead of consensus expectations as investments over recent years to improve its technology platform and build brand awareness drove market share gains.
“The company continues to acquire users faster and more efficiently than during prior launches, accelerating the timeline for states to reach positive contribution profit, and older states are still exhibiting strong growth despite declining promotions and marketing spend,” they wrote in a note to clients.
“DraftKings has also made strides on the iGaming front and estimates it now has the #1 market share position in the US at 26% in 1Q, with in-house game development delivering differentiation and new features such as the exclusive DK jackpot product now live in three states across over 100 slot and table games.”
Additionally, the analysts noted that DraftKings had once again raised its 2023 financial year revenue growth outlook while significantly reducing its expected earnings before interest, taxes, depreciation, and amortization (EBITDA) loss.
“Stronger customer retention and engagement than previously anticipated was cited as the primary driver of the upgraded outlook ($195 million of the revenue increase and $80 million of the EBITDA improvement), with structural hold rate expansion due to parlay mix and favorable outcomes during 1Q also contributing to the recent momentum,” they wrote.
“The company is rapidly approaching the profitability inflection that it has telegraphed since it when public in 2020, and we continue to see a long runway for sustained growth given DraftKings’ strong brand and product offering along with ongoing legalization progress.”
As such, the analysts raised their price target on the stock from $30 to $34 and awarded it a ‘Buy’ rating. DraftKings shares are currently trading at $24.25.
“We are raising our price target to $34 (from $30), which is based on approximately 4x our FY24 revenue estimate (unchanged) and is supported by discounted cash flow valuation,” the analysts wrote.
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