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Why DraftKings' Shares Jumped 8.4% on Tuesday

By Travis Hoium – Aug 18, 2020 at 5:11PM

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An analyst helped push shares higher today.

What happened 

Shares of online gambling company DraftKings (DKNG -0.41%) jumped as much as 8.4% in trading Tuesday after getting a confident note from an analyst. At the market's close, shares were up 7.3% for the day. 

So what

In a note to investors, Rosenblatt analyst Bernie McTernan said he didn't think a potential excise tax on daily fantasy sports betting proposed by the IRS is a big deal for the company. Management has said they don't expect changes to taxation rules, but even if they do, McTernan doesn't think it changes the value of the company much.

Computer and mobile phone with a sports betting app open.

Image source: Getty Images.

What investors should be more worried about than taxes is whether or not DraftKings can hit the lofty goals that analysts have put on the stock. McTernan himself thinks that DraftKings can generate $700 million of revenue in 2021, despite just $71 million of revenue being generated in the second quarter of 2020. Quarterly revenue would have to nearly triple to hit that target, and that's a challenge even for a growth stock like DraftKings. 

Now what

The reality is that DraftKings is a volatile stock, meaning any comment by analysts or report from a state can move the stock. So I wouldn't read too much into the move today. Chalk it up to normal volatility and pay more attention to the trajectory of revenue, which has to grow quickly to hit analyst projections in 2020. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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