DraftKings Stock Upgraded By JP Morgan Analyst After Strong Summer

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DraftKings stock

Joe Greff of JP Morgan upgraded DraftKings stock to overweight and raised his price target to $37 Tuesday, citing the company’s strength in the online sports betting market and its sluggish share performance.

Greff was previously neutral on the stock with a 2023 year-end target of $26.

The upgrade came the same day Greff and his team published survey results of 1,104 male bettors across 11 states. DraftKings received the most votes in terms of user experience (36%), reliable technology (35%) and most wagering options (36%.)

FanDuel, the national leader in US sports betting despite an accelerating DraftKings, ranked a close second in each of those categories.

What Greff sees in DraftKings stock

Greff noted DraftKings is gaining market share because of higher holds from an increased push in parlays and improved trading. That has been seen in state revenue reports across the country, including in New Jersey and Michigan.

DraftKings should also be seeing improved customer acquisition costs as scale grows and marketing costs fall, which will help grow its EBITDA margin, he added.

Its upcoming investor day in November should lead to a positive bump for the stock, Greff said. Greff expects DraftKings to make $310 million in adjusted EBITDA off $4.36 billion in revenue in 2024.

DraftKings stock down since Q2 earnings

As of Thursday’s close at $28.93, DraftKings had seen its stock fall 8.8% from the $31.74 it closed at Aug. 4 after its second-quarter earnings report.

The upgrade and positive survey responses kicked up action starting Tuesday, with a volume of 17.3 million, up from its daily average of 11.6 million.

The stock grew 2% Tuesday and was up more than 4% Wednesday at 1 pm Eastern.

DraftKings leads as primary platform

Forty-three percent of survey respondents in new states said DraftKings is their primary online sportsbook. DraftKings was also recognized as offering the most generous promotions with 42% of the vote.

Respondents were most likely to bet with DraftKings (36%), followed closely by FanDuel at 33%. The next closest competitor was BetMGM with 13% of votes.

It makes sense that the brands with consistent national ad campaigns would be in the top three given the most important reason (29%) for why bettors say they selected that platform is because of the well-known and trusted brand.

Promotions and free play ranked next at 18%, with the best odds at 16%.

Product matters in older states

Greff noted two trends from states older than a year, though, that are seeing lower promotional spending than previous years. The first is that fewer promos seem to be driving stronger user loyalty to well-known brands.

The second is that product improvement is also driving customer loyalty across operators, he said. Those survey respondents see the improvement too: 53% said their sports betting platform is better overall than it was last year.

One interesting note is that parlay bettors are more concerned about better odds (23%) than they are about a trusted brand (22%.)

What about ESPN Bet?

Just 8% of respondents said they were not interested in trying an ESPN-branded operator. Penn Entertainment switched out Barstool Sports for ESPN in August and expects to launch in November.

A quarter of respondents said trying an ESPN-branded book would come down to promotions.

The well-known ESPN brand (20%) and the consumption of the majority of sports content from ESPN (16%) ranked second and third.