DraftKings Stock Is Downgraded on Regulatory Headwinds, Competition



DraftKings stock fell after an Argus Research analyst cut his rating, saying he expects the gambling company to face fierce competition and sees revenue growth slowing in response to regulatory headwinds.

DraftKings stock fell after an Argus Research analyst cut his rating, saying he expects the gambling company to face fierce competition and sees revenue growth slowing in response to regulatory headwinds.

Analyst John Staszak downgraded DraftKings (ticker: DKNG) to Hold from Buy. He also widened his forecast for the company’s 2022 loss to $2.80 per share from $1.65, saying he doesn’t see it achieving a profit until the third quarter of 2023, which ends in September.

The stock was down 7.3% to $19.19 in early trading, while the S & P 500 was off 1%.

DraftKings posted its fourth-quarter results last month, saying revenue grew 47% to $473 million versus the year earlier. “This growth was driven in part by legalization in additional states and more wagers by core customers,” Staszak said in a research note. The number of unique monthly players rose 32% in the quarter ended in December, while the company reported being live with mobile sports betting in 17 states.

But Staszak expects fewer states to approve online sports betting in 2022, resulting in slower revenue growth, he said.

DraftKings has forecast 2022 revenue of $1.85 billion to $2 billion, a number it increased from a previous call of $1.7 billion to $1.9 billion.

“DraftKings is facing fierce competition from MGM Resorts International ‘s (MGM) and casino operator Wynn Resorts (WYNN), which are expanding their online sports betting operations and in our view, [DraftKings] needs to strengthen its marketing efforts,” Staszak said.

The company didn’t immediately respond to a request for comment.

The stock trades at 6 times per-shares sales, lower than the average of 14 times for a basket of “app economy” companies like Peloton Interactive (PTON) and Shopify (SHOP), Staszak said. But he thinks this discount is warranted given the regulatory and competitive challenges, not to mention changes in consumer spending trends and the difficulty of managing betting risk.

Analysts tracked by FactSet have an average rating of Overweight on the stock.

This article is a reprint from Barron's. To  view the original story, share and comment, click here.


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