Morgan Stanley adjusts DraftKings projections after economic deep dive
The investment bank will move forward with plans to increase projected revenues, but will also be decreasing adjusted EBITDA estimates for the sportsbook operator.
Morgan Stanley has undergone an economic deep dive of DraftKings stock following its Q2 results.
The operator’s Q2/FY2024 adjusted EBITDA guide experienced weaker profitability from higher customer acquisition.
Overall, the Morgan Stanley verdict reflects what we all already know: that the DraftKings model is all about maximizing sales, but that that model is yet to yield a true profit.
It looked like we could finally be seeing a turning point, but DraftKings’ profitability prospects seem to have gone the other way in its most recent report. The operator’s stock is currently worth $31.04. It is up 4% today but down 2% over five days.
Over the past month, it has fallen 21%.
DraftKings’ total 2024 EBITDA has been moved to $400m from the originally projected $538m amount, near the mid-point of DraftKings’ updated guidance range. Its 2025 and 2026 expected adjusted EBITDA estimates were also moved down to $1.07bn and $1.8bn versus the $1.25bn and $2.1bn, respectively, by Morgan Stanley.
Expected revenue for the remainder of 2024 was increased, however, by 3% according to the company. 2025 and 2026 expected revenue projections were also increased by 6% and 3%.
Morgan Stanley stated in its report that revenue increases were primarily driven by continued strength in customer spend in key gaming states including New Jersey, Pennsylvania and Michigan for DraftKings.
Commenting on how the strategic model behind DraftKings could be changed, Morgan Stanley stated that “the guide down on customer acquisitions has led investors to question the path to profitability and revenue assumptions. As a result, we review DraftKings’ user economics and maturation based on disclosed data on payback periods, customer acquisition costs, retention/churn rates and spend/active user.
“While we acknowledge flow-through disappointed in the quarter and warrants greater skepticism over forward targets outlined by management at it’s investor day, the company has been able to generate revenue well-above its expectations on significant gains in user growth.”
DraftKings recently expanded its operations to the Washington DC area on July 23 following a market access agreement with soccer franchise, DC United.
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