DraftKings Rallies on Pre-Earnings Bull Call by Bernstein

Posted on: August 2, 2021, 09:43h. 

Last updated on: August 2, 2021, 10:02h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

DraftKings (NASDAQ:DKNG) stock is trading higher Monday after research firm Bernstein reiterated an “outperform” rating on the sportsbook operator.

draftkings stock
DraftKings stock rallies on bullish note. The company reports earnings on Friday. (Image: Wall Street Journal)

That bullish call comes after DraftKings shed seven percent in July, and in advance of the company’s second-quarter earnings report scheduled for Friday, Aug. 6, prior to the open of US markets. Bernstein said that batch of numbers from the gaming company — its fifth report as a public company — is likely to be “strong.”

During the quarter, consensus has consistently revised upwards revenue estimates for Q2 2021 as well as FY 2021 — however, according to our calculations, Q2 revenues are still likely to end up above street expectations,” said Bernstein in a note to clients.

DraftKings caps what will be an active week of gaming and sports wagering earnings as Caesars Entertainment (NASDAQ:CZR), MGM Resorts International (NYSE:MGM), Wynn Resorts (NASDAQ:WYNN) and Penn National Gaming (NASDAQ:PENN) all step into the earnings confessional between Aug. 3 and Aug. 5.

DraftKings Stock May Need Help to Surprise

The Boston-based daily fantasy sports (DFS) provider likely needs to deliver stellar results for the June quarter, while delivering positive guidance for the current quarter, in order to stoke more near-term upside in the shares, because some good news is already baked into the stock.

In May, following its first-quarter earnings report, DraftKings boosted its 2021 revenue outlook to $1.05 billion to $1.15 billion from $900 million to $1 billion. That outlook pertains to the states in which it’s currently operational, assumes no departures from those states, and that the domestic collegiate and professional sports calendars will not be dramatically altered.

It’s possible that there is room for an upward revision to the operator’s 2021 sales forecast because Arizona, Louisiana, and perhaps Maryland could have regulated sports betting up and running in time for the start of the NFL season on Sept. 9.

For the April through June quarter, analysts expect DraftKings will report a loss of 58 cents a share on revenue of $245.87 million.

Room for Surprises

For now, it’s just speculation. But DraftKings has several avenues in which it could pleasantly surprise analysts and investors with its upcoming earnings report.

Given that the company isn’t profitable, it could report a narrower-than-expected loss, show a decline in customer acquisition costs, or indicate it will cease losing money sooner than Wall Street expects. The company could also show investors it’s gaining market share in either iGaming, online sports betting, or both. Or that more states are close to approving online casinos. However, it remains to be seen if any of these scenarios will be discussed on the Friday earnings call.

One thing is clear. With sports betting stocks slumping in recent months and the August through October time frame historically being the worst three-month stretch of the year for equities, if DraftKings delivers disappointing numbers or downbeat guidance this week, it’s possible the stock will be punished.