If your money was riding on DraftKings (DKNG 3.94%) in 2023, you fared pretty well. The stock more than tripled last year, soaring 209% as the online sportsbook operator and fantasy sports leader cranked out strong growth in a favorable market for live sports wagering.
A strong performance in 2023 doesn't mean that it's time to cash out. It's unlikely to triple again in 2024, but let's go over some of the reasons why DraftKings has a chance to defy the odds by doubling again in the year ahead.
NASDAQ: DKNG
Key Data Points
1. Expectations are low in 2024
A big reason for DraftKings' monster stock chart in 2023 is the unexpectedly robust growth that the company has delivered. Revenue has soared 76% through the first nine months of 2023, accelerating from the 73% top-line increase it posted for all of 2022. The market's bracing for a sharp slowdown this year.
Analysts see DraftKings generating nearly $4.7 billion in revenue in 2024, a big number but a modest 27% increase for a company that has grown its top line by at least 65% in each of the last four years.
Sentiment is growing cautious. Benchmark put out a cautious analyst note last week, arguing that unfavorable sports results in November could lead to results falling short for the quarter. This doesn't mean that it's time to throw in the towel. DraftKings more than tripled last year as it cranked out one "beat and raise" quarter after another. Its guidance calls for 65% revenue growth for 2023 when it makes its full-year numbers official next month. However, last year began with DraftKings targeting just 33% in annual growth.
I'm not saying that it's a great thing that seasoned Wall Street pros are cautious on DraftKings. All trends suggest business will decelerate in the coming year. However, it's comforting to see a low bar for a company that has proven to be such an adept hurdler lately.
Image source: Getty Images.
2. DraftKings could turn profitable
It isn't just the improvement on the top line that made DraftKings popular in 2023. Things are getting better on the other end of the income statement.
The online sports wagering speedster is still in the red, but it's been able to trim its net loss by a third through the first three quarters of 2023. Analysts see DraftKings posting its first quarterly profit next month, cutting its full-year deficit by more than half. All of the roughly two dozen analysts don't see a profit for all of 2024, but they see another year of dramatic improvement on the bottom line.
The kicker here is that DraftKings has easily trounced analyst profit targets in each of its last four reports. I realize that Benchmark is concerned about a rare miss by DraftKings, but history and momentum suggest that the beats will keep coming. Wall Street pros see a loss of $0.27 a share out of DraftKings this year, a better than 90% improvement over the past two years.
The kindest of analyst forecasts calls for net deficit of $0.03 a share. It won't take much for DraftKings to build on what should be a breakthrough quarter of profitability in the final frame of 2023 to deliver its first full year of positive reported earnings in 2024.
3. The starting line is kinder than you think
A stock that more than triples over the past year isn't likely to be cheap. DraftKings is trading for less than five times its trailing revenue, but its largest online sportsbook peers are trading at much lower multiples.
However, DraftKings traded north of $74 when it peaked in 2021. It's trading for less than half of that peak price now. In short, even if DraftKings stock would double this year it doesn't mean that it will hit an all-time high. There are understandable risks with sports betting stocks. However, DraftKings managed to post stellar growth even in 2020 when the pandemic briefly shuttered some live sporting events. This is a more complete company than it was nearly three years ago when its stock was trading more than 120% higher. You might want to reconsider betting against DraftKings in 2024.
