Is DraftKings A Good Bet Ahead of Q1 Earnings?

Key Points

• DraftKings analysts are lifting their targets, but the bar is still low; outperformance is the expectation.
• Record sports betting during March Madness and newly opened territories like North Carolina will drive strength. 
• Analysts are raising their ratings and price targets ahead of the May earnings release, leading the market higher. 

DraftKings NASDAQ: DKNG is a good bet ahead of fiscal Q1 earnings because analysts underestimate its growth, and tailwinds are blowing the business to record highs. The next release is scheduled for early May, and analysts have been mostly revising upward but have left the bar low. As it is, the consensus estimates reported by Marketbeat.com expect a seasonal sequential decline in revenue and slowing YOY growth that fails to account for March Madness and the opening of its sportsbook to North Carolina residents. 

March Madness is a top-five sporting event to bet in 2024 and is expected to draw record revenue. Sportsbooks like DraftKings are also likely to significantly improve their hold rates with the growing popularity of in-game betting and parlays, which combine multiple selections into a single bet, raising the stakes and the risk.

Regarding NC, North Carolina opened its borders to online gambling this year, with sites like DraftKings going live just before the NCAA Tournament began. This is significant because North Carolina is a top-six market for sports betting and has two cities in WalletHub’s ranking of top cities for basketball fans. We love our basketball, and rivalries run deep. 

Early channel checks by GeoComply showed more than 5.25 million geolocation checks from NC in the first 48 hours of live sports betting, a solid figure for a state with about 11 million residents. 

DraftKings Analysts Are Raising Their Targets and Leading the Market

Analysts are bullish on DraftKings, leading the market higher through sentiment and price target revisions. The sentiment has risen to Moderate Buy from Hold in the last twelve months and is verging on a Strong Buy. The consensus price target continues to lag behind the stock price but is up 100% since last year, with all fresh targets above it. The five revisions tracked by Marketbeat.com in March have targets ranging from $52 to $58, suitable for a gain of 6% to 18%. 

The most recent is from Barclays NYSE: BCS, which upgraded from Equal Weight to Overweight with a price target of $50. In their view, the company still has significant growth ahead of it because the addressable market is more extensive than first forecasted. Even mature states have some upside and will aid long-term margin expansion. Assuming the Q1 release and outlook are as solid as expected, the upward revisions and upgrades should continue through mid-year. 

Insider Selling Isn’t An Issue For DraftKings: Institutions Are Buying

DraftKings Insiders have been selling shares for the last few quarters, and their activity has ramped up, but it isn’t an issue for investors. Insiders and major shareholders have sold only small amounts as the stock rallied higher and still own more than 55% of the shares. Selling will likely continue due to the rising share price but will unlikely alter the price trajectory alone. 

Institutional activity is ramping up, and this consumer tech stock's net result is bullish. Institutional holders own about 40% of the stock, and ownership is broad, with over nine hundred organizations invested in it and buying activity on the rise. The largest holders are BlackRock NYSE: BLK and Vanguard, with roughly 13.5% net, followed by ARK Investment Management, with 1.5%.

DraftKings Is In An Uptrend and Can Rally Higher

DraftKings stock price is in an uptrend and can rally higher. However, the next hurdle is just above the current action and may cap gains until the Q1 report is released. In this scenario, the price action may move sideways within the current $40 to $50 range, and a move to the low end is a likely entry point. If the market can sustain upward momentum, it could advance into the $50 to $60 range before May.