DraftKings Extends Slump as UBS Forecasts Bigger Losses, No Profitability Until 2024

Posted on: November 15, 2021, 09:22h. 

Last updated on: November 15, 2021, 05:15h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

DraftKings (NASDAQ:DKNG) stock is extending recent bearishness Monday, after UBS forecast larger losses and a longer time line to profitability for the sports wagering company.

DraftKings stock
A sign for DraftKings Fantasy Sports Zone, seen at Gilette Stadium in Foxboro, Mass. The company’s stock continues weakening. UBS cuts price target forecasts larger losses in 2022 and 2023. (Image: Hartford Courant)

In a note to clients today, the bank pared its price target on DraftKings to $44. While that’s nearly 10 percent above where the shares currently reside, that new forecast is 31 percent below the bank’s prior price objective, and 33 percent below the Wall Street consensus.

The UBS call on the once-hot sports betting name comes as the shares are mired in a two-month slide. Down almost 18 percent over the past month, DraftKings needs to gain more than 50 percent to reclaim its September highs.

UBS’s less-than-enthusiastic assessment of the gaming equity also arrives less than two weeks after the Boston-based company delivered its financial update for the third quarter. That forecast included a wider-than-expected loss and revenue outlook for 2021 and 2022 that Wall Street wasn’t excited about.

Ailing DraftKings Stock

In commenting on the weak September quarter results, DraftKings cited bettors’ good fortune in wagering on the NFL. That trend doesn’t appear to be abating, as the operator’s full-year forecast includes a $25 million negative revenue impact-driven in large part by clients winning on NFL action in October.

There are other factors at play explaining the recent weakness in the shares. Analysts and investors are growing concerned about the harsh economics of the online sports betting industry, which requires operators to spend copious amounts of capital to attract customers, with no guarantees those clients will be loyal over the long term.

All that spending is leading to per-share losses at some companies. On that note, UBS estimates DraftKings will report larger-than-expected earnings before interest, taxes, depreciation and amortization (EBITDA) losses next year and in 2023, before turning profitable on that basis in 2024.

Entering this year, the prevailing sentiment was that DraftKing would be profitable on an EBITDA basis by 2023 at the latest, indicating the UBS forecast is somewhat gloomy relative to expectations. Still, it’s not as bad as Roth Capital’s outlook of 2025 being the year DraftKings sheds its money-losing ways.

DraftKings Analysts Applying More Scrutiny

It wasn’t that long ago that bearish analyst chatter on DraftKings was almost viewed as heresy in the investment community. But those views are becoming easier to defend as the stock slides.

Prior to the UBS call Monday, the last four analyst actions on DraftKings’ price target were each reduction — two of which were accompanied by tepid “hold” ratings, while another came with a “sell” rating.

Those could be signs Wall Street believes the state-by-state legalization thesis is largely factored into DraftKings stock at this juncture. It also reflects the sentiment that the company needs to trim losses to foster excitement among investors.