In a January 2 investor note, J.P. Morgan analyst Joseph Greff recalibrated his fourth-quarter estimates for DraftKings’s performance. The review was prompted by a string of unfavorable sports scores, as “favorites, multi-game parlays, and other bets heavily backed by the public won at a (much) higher than normal rate.”
Greff knocked $150 million off his fourth-quarter revenue estimate, bringing it down from $1.5 billion to just under $1.4 billion. He also trimmed his cash-flow projection by $100 million, revising it to $68 million for the last three months of 2024.
The analyst modeled his adjustments on October adversity experienced by DraftKings. Its management admitted a negative impact of $275 million in lost revenue and $175 million less cash flow, thanks to game results that were overwhelmingly favorable to bettors.
According to Greff, in December DraftKings was holding seven percent of all money wagered (handle) compared to 7.2 percent for its peers. Last October, DraftKings had held 7.2 percent, while other sports betting providers kept 7.6 percent of handle.
The saving grace of the fourth quarter, said Greff, were operator-favorable outcomes in November. At that time, operators kept 11.6 percent of handle, an above-average tally.
Allowing for the volatility present in sporting events, Greff opined that the fourth-quarter adversity did not materially affect DraftKings’ outlook for 2025. He stood by estimates previously given for 2025 revenue and cash flow, as well as for 2026.
Greff forecast 2025 revenue on the order of $6.4 billion, followed by $7.3 billion in 2026. That would mean 35 percent growth next year and a 13 percent increase in the following year.
Cash-flow projections remained $950 million for 2025 and $1.5 billion in 2026. As for longer-term financial forecasts extending into 2028, Greff wrote that he did not perceive excessive aggressiveness, deeming DraftKings’s desired profit margins feasible.
The analyst did not contemplate any repurchases of DKNG shares. However, he noted that the company had $1.7 billion cash on hand, with $500 million more available in the form of a revolving line of credit, “which provides a solid liquidity position if management chose to buy back shares.”
Greff stuck by his Overweight rating on DraftKings, citing its “attractive revenue growth profile and an ability to leverage its scale and strong competitive position in the U.S.”
He also maintained a $53 per share price target on the stock, “pretty appealing for a (the only) pure-play, high-growth U.S. digital OSB and iGaming operator.” At the time of his report, it was trading at $36.29 a share.
