In the ever-changing landscape of DraftKings Inc., a new development has sparked a shift in sentiment among investors.
Earlier this week, optimistic upgrades for DraftKings focused on the company’s profit potential. However, JPMorgan’s Joseph Greff has taken a different stance, moving from underweight to neutral. This change comes in response to the pressure DraftKings shares have faced due to recent competitive developments in the online-sports-betting (OSB) industry.
Greff’s rating adjustment coincided with a 10% after-hours selloff caused by Penn Entertainment Inc.’s plans to partner with Walt Disney Co.’s ESPN and rebrand their sportsbook as ESPN Bet.
The news of this partnership has generated a negative reaction among DraftKings investors. Many are concerned about the potential increase in competition and promotional pressure from Penn, a OSB/iGaming operator with a relatively small current market share. Greff believes that Penn will have to be aggressive, especially during the initial part of its 10-year agreement with ESPN, to attract and retain users.
However, Greff sees an opportunity in this price weakness and is using it as a reason to abandon his bearish stance. He believes that, at current levels, the shares’ valuation is more balanced, suggesting that the company may be on a more positive trajectory moving forward.
DraftKings: Assessing the Investment Potential
The recent performance of DraftKings has sparked mixed opinions among analysts. While some remain optimistic about its prospects, others express concerns about its valuation. Let’s take a closer look at what these experts have to say.
According to one analyst, the current valuation of DraftKings is quite expensive. At 18.2 times the estimated enterprise value to earnings before interest, taxes, depreciation, and amortization (Ebitda) for 2025, it becomes challenging to anticipate further upside potential from its current levels.
Potential Ebitda Boost
Contrary to the above sentiment, another analyst from Wells Fargo sees the possibility of DraftKings experiencing an Ebitda boost in the second half of 2023. This could be attributed to the anticipated conclusion of prior semi-exclusive marketing deals with ESPN. However, the heightened competition from ESPN Bet might offset this boost if DraftKings resorts to offering higher promotional deals.
A Strong Position in the Industry
Remaining bullish on the company, another analyst from Piper Sandler highlights DraftKings’ position as an industry leader with significant scale and product advantages over its competitors. The analyst cites the strong user experience and customer loyalty as factors contributing to their positive outlook on the stock.
Overall, opinions about DraftKings’ investment potential are mixed. While concerns about its expensive valuation persist, the possibility of an Ebitda boost and its leadership position in the industry indicate there is still room for growth. Currently, DraftKings shares have experienced a 9% downturn in Wednesday’s morning trading session.