DraftKings' (NASDAQ: DKNG) price action hit a 9-month low in early Q2 due to unfounded fears of weakening business in Q1. However, it is now in an updraft that can take it to a multi-year high by the end of 2025. The reason is that the results remain strong, the company continues to build leverage, new opportunities arise, and the balance sheet is healthy, promising shareholder value gains in F2025 and the long term.
[content-module:CompanyOverview|NASDAQ: DKNG]Among the opportunities is the acquisition of Jackpocket.
Jackpocket negatively impacts revenue per user and margin in early F2025 due to its naturally lower ARMUP, or average revenue per monthly unique player, but provides an opportunity for margin improvement over time.
That opportunity includes improving the user metrics in Jackpocket's core player group while cross-selling DraftKings' other opportunities to it.
Add in the expected entry into Missouri and the growth potential of iGaming, and DraftKings' future is all but assured. iGaming is live for only 11% of the U.S. population compared to nearly 50% for the sportsbook, but it is already equal to almost 50% of the sportsbook regarding revenue contribution.
DraftKings Has Solid Quarter Despite Tepid Comparison to Analysts' Forecasts
DraftKings had a good quarter in Q1, growing its revenue by 19.5% to $1.41 billion. The gains are driven by engagement, new users, improved hold, and acquisitions, including Jackpocket. The only bad news is that the revenue fell short of the consensus reported by MarketBeat, but the miss is slim and offset by margin strength. DraftKings' monthly unique players, or MUP, grew by 28%, 11% adjusted for Jackpocket, with the Sportsbook revenue up 20.1%, iGaming by 14.5%, and Other by 45.7%.
[content-module:Forecast|NASDAQ: DKNG]The margin news is good. The company reported a less-than-expected 5% contraction in ARMUP, with unfavorable sports outcomes slightly offsetting improved hold rates and client leverage in the gaming segments. The hold rate in the core business, adjusted for acquisition, is up 7%.
The net result is adjusted earnings of $0.12, as expected, compared to the slight top-line miss, sufficient to sustain the company’s financial health and growth outlook. Regarding the financial health, the balance sheet details at the end of Q1 include increased debt. Still, leverage remains low, with increased cash offsetting it, and debt running at roughly 2.1x equity and 1.1x cash.
Guidance is a sticking point for this entertainment company, but as with the Q1 results, the negative impact of forecast reduction is offset by the cause and underlying operational quality. The company reduced its outlook for full-year 2025 revenue and EBITDA due to the unfavorable sports outcomes, but to levels only slightly below the analysts' forecasts and sufficient for a 32% YOY gain.
Analysts Issue Mixed Response; Indicate New Highs for DraftKings Stock
The first revisions tracked by MarketBeat indicate a mixed response from analysts, with one reducing its price target and the other reiterating. However, the average of the $50 and $65 targets is $57.50, above the current consensus and recent highs.
Those targets are coupled with a firming Moderate Buy rating verging on Buy and an institutional tailwind. The institutional holdings aren’t robust at less than 40% of the stock, but they are buying on balance in 2025 and will likely continue to do so as the year progresses.
The price action in DKNG is bullish in mid-May. Following the Q1 release, the market confirmed the bottom of a trading range, and stochastic and trading volume indicated that the price action was moving higher. The critical resistance point is near $38.25 and likely to be tested if not broken before the month’s end.
The market for DKNG could continue to build momentum in this scenario and could rise to retest the all-time high by the end of summer or early fall.
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