Due to fierce competition, increased sports betting taxes, and concerns about recent gambling scandals potentially damaging the company's public image, DraftKings' stock price fell by 1.3% in 2024. Despite DraftKings' poor performance this year, many analysts remain optimistic about the prospects of this sports betting company with the upcoming NFL season.
Positive Factors Favor Operators
Many analysts believe the upcoming football season is a critical moment for the company's success, which could greatly boost its performance. Benchmark analyst Mike Hickey recently gave DraftKings a "buy" rating, setting a target price of $44, which is 28% higher than Monday's closing price of $34.41, and noted that this presents significant opportunities.
Hickey reminds everyone that the stock has fallen 32% from its March high of $50, and the start of the football season on September 5 could lead to a significant rebound in stock prices. The NFL season usually results in a much better financial situation in the fourth quarter than in the previous quarters, as fans log on to the platform to support their favorite teams and players.
Driven by higher market profit margins in the third quarter, new user growth, traditional tax relief strategies, and valuation contraction before the NFL season, DKNG's prospects have improved, creating an attractive entry point.
Benchmark analyst Mike Hickey's Dow Jones market data shows that from the start of the NFL regular season to the Super Bowl, DraftKings' annual growth rate has remained above 5%. In addition, a sustainable customer acquisition strategy can consolidate the operator's position in core states, enhancing brand awareness and market penetration.
Short-term Difficulties Should Not Have a Major Impact
JMP Securities analysts also hold an optimistic view, noting that the company's market share in the US sports betting sector has grown significantly. In July 2024, DraftKings accounted for 37.8% of the online gambling market in the US states, up from 35.5% in the second quarter. This growth occurred during a typical off-season, attributed to a rebound in gambling profit margins to over 10%.
Despite these positive developments, DraftKings also faces some direct obstacles. The operator is currently embroiled in a legal dispute with its former VIP executive Michael Hermalyn over a non-compete agreement. Additionally, the company recently ran into trouble with New Jersey regulators over revenue reporting violations, raising significant concerns.
These setbacks have not weakened analysts' confidence, as most analysts maintain a "buy" rating. The general consensus is that DraftKings has the ability to capitalize on the surge in sports betting activities, translating it into significant gains for the company and its investors. The operator should be able to overcome short-term challenges and capitalize on emerging opportunities.
