“DraftKings thinks they have enough cash on their balance sheet to be investing and acquiring customers in the same manner they are now to eventually get to profitability in 4Q of '23,” Needham & Company Managing Director Bernie McTernan told Yahoo Finance (video above). “And we think full-year profitability in fiscal '24."
Consistently producing a profit has proven challenging for sportsbooks as increased legalization has meant expensive product launches and promotions in new territories.
Through three weeks ending on September 18, FanDuel — a subsidiary for Flutter Entertainment (PDYPY) — recently reported a quarterly profit and currently leads the nation’s largest betting market (New York) with 47.98% of the overall gross gaming revenue, the take-home number for operators after accounting for taxes and other losses. DraftKings is next with 29.83% of the New York market, followed by Caesars (CZR) at 12.59% and BetMGM (MGM).
GeoComply, which is used by sportsbooks to verify users' locations, tracked 103.1m check-ins nationwide during Week 1 of the NFL season. That marked a 71.5% increase from last year. The question for investors and analysts becomes which apps are seeing the most activity among those check-ins.
In a note to clients, McTernan highlighted that FanDuel and DraftKings are currently leading activity on iOS Sports app rankings, holding well above the next closest sportsbooks BetMGM, Barstool Sportsbook (PENN), and Caesars.
DraftKings' strong position at the top of that list, coupled with it continuing to promote while others like Caesars have cut back, is why Needham & Company is bullish on the stock. McTernan’s current $25 price target on the stock indicates a potential 70% upside over the next 12 months.
“We continue to think DraftKings — one of the reasons why we have a Buy rating on the stock — is that we think that just their scale begets better technology, which could be a differentiating factor and a reason why customers keep returning to the platform," McTernan said.
Josh is a reporter and producer for Yahoo Finance.