What happened
Share of DraftKings (DKNG 4.96%) were tumbling almost 10% heading into noontime trading Monday after the daily fantasy-sports and sports-betting platform was downgraded from buy to hold on prospects for slowing growth.
Argus Research analyst John Staszak says the bull thesis for DraftKings is predicated on more states legalizing sports gambling, but he sees fewer of them doing so this year.
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So what
DraftKings posted earnings last month that showed revenue jumping 47% from the year-ago period as more states legalized sports betting and the betting app saw more core customers place bets. Yet losses also widened for the period, and that's pushing back the prospects for achieving profitability. Staszak doesn't see that occurring now until the third quarter of fiscal 2023, which ends in September.
Even so, Barron's reports Staszak told investors in a research note that DraftKings needs to do more: "DraftKings is facing fierce competition from MGM Resorts International's (MGM -2.58%) and casino operator Wynn Resorts (WYNN -0.74%), which are expanding their online sports betting operations and in our view, [DraftKings] needs to strengthen its marketing efforts."
Now what
While DraftKings expects full-year 2022 revenue to range between $1.85 billion and $2 billion, up from previous guidance of $1.7 billion to $1.9 billion, Staszak now expects the sports betting platform to post losses of $2.80 per share, far higher than his previous estimate of $1.65 per share.
Staszak thinks the discount the market is giving DraftKings of just 6 times sales compared to other "app economy" stocks is warranted because it faces greater regulatory and competitive hurdles.
