Spurred by an influx of new players to DraftKings, J.P. Morgan analyst Joseph Greff has raised his quarterly revenue projection for the company. His forecast for the second quarter now calls for more than $1.1 billion in revenue, up from $1.09 billion, propelled by online sports betting (OSB).
In addition to a $200 million upward swing, however, Greff also foresees higher customer-acquisition costs. Accordingly, he shaved his cash-flow projection from $150 million to $110 million for the second quarter.
Other mostly positive factors were high sports-betting hold on New York Knicks and New York Rangers playoff games and Major League Baseball outcomes. Offsetting these was a low hold on the U.S. Open golf tournament, gamblers having bet heavily on winner Bryson DeChambeau.
Greff also lopped $40 million off his cash-flow forecast due to the newly raised OSB taxation in Illinois, where DraftKings’s winnings face a 40 percent levy. The July 1 inception date, Greff wrote, “doesn’t give much time for DKNG (and the other OSB operators) to mitigate near-term profit impacts — [Illinois] specific advertising and marketing outlays are pretty much set at this point in the year.”
The analyst “largely” stood by his projections for 2025 and 2026, saying that Illinois’s higher taxes would be mitigated by that point. One counterforce would be the new arrival of lottery service provider Jackpocket, which Greff has yet to model into his predictions.
“We think it’s more likely than not that DKNG implements a sizable, multi-year, share-repurchase authorization, given its growing cash balance and path to improving profitability,” he added.
Greff stood by his Overweight rating on DraftKings stock and his $56-per-share price target. The stock is currently trading around $43.25 a share.
In conclusion, Greff opined that DraftKings owns an attractive profile for revenue growth, as well as the ability to leverage its sheer bulk to rationalize operating expenses, improve margins, and widen cash-flow streams.
