DKNG stock: DraftKings second quarter earnings show it could be worth $ 80 and up
DraftKings (NASDAQ:DKNG) released their second quarter results on August 6 and it was a big surprise. Analysts were expecting between $ 242 million and $ 247 million in sales, as I mentioned in my article last week. But when the actual report arrived, DraftKings reported a much higher number than analysts had expected. As a result, DKNG stock is now worth much more, according to analysts’ expectations.
Sales reached $ 298 million for the quarter. This represents sales 22% higher than the midpoint of previous analysts’ expectations.
It is very unusual. As a general rule, when there is a surprise from analysts’ expectations, it can be in the range of 3% to 5%, maybe 10% at most. But 22% higher is really amazing. It basically shows that people are simply playing a lot more than anyone might have expected.
In addition, the company also said it has increased the number of monthly single payers by 281% and the average monthly single payer income by 26%. In other words, fundamental growth has been very strong.
Where that leaves DraftKings Stock
This implies that the underlying value of the DKNG stock is probably much higher than I previously thought. For example, DraftKings also announced that its forecast for the year is now much higher. He said sales for 2021 will be in the range of $ 1.21 billion to $ 1.29 billion.
DKNG stock has now gone from a recent closing low of $ 43.79 on July 16 to $ 51.98 at the closing August 10, up 18.7% since the second quarter earnings release. The market realizes that something has changed here. People are really drawn to DraftKings to play online.
For example, analysts polled by Seeking Alpha believe 2021 revenue will be the company’s top end. Additionally, sales by 2022 will reach $ 1.72 billion and up to $ 4 billion by 2025. In my previous article, I wrote that the analysts forecast was $ 3.57 billion. by 2025.
Now assuming an EBITDA of 50% (earnings before interest, taxes, depreciation and amortization), this implies that EBITDA will reach $ 2 billion in 2025. At 15 times the value of the enterprise (EV) compared to l ‘EBITDA, the company is worth $ 30 billion in EV. After adding $ 2.646 billion in cash, as of June 30, the total market value of the shares is $ 32.646 billion.
That’s 55.7% from the August 10 market value of $ 20.963 billion, as calculated by Yahoo! Finance, which tends to have the most accurate market value. In other words, my target price for DKNG stock is $ 80.93. That’s higher than my previous price target of $ 71.66.
Where that leaves DKNG Stock
As I explained in my last article, I usually discount future earnings or EBITDA numbers like this to their present value. However, in this case, I don’t think it is necessary.
The reason is that the sports betting industry will experience both significant and steady growth over the next 10 years. This implies that it is not necessary to actualize the present since the growth will be so strong. I suspect that analysts will consistently underestimate this growth going forward, just as they did this quarter.
Indeed, the market is prepared to value this security on the basis of its EBITDA over four years in the future, as it does for other fast-growing sectors such as electric vehicles.
And that doesn’t even include revenue from the company’s new initiatives such as its NFT (non-fungible tokens) in its collaboration with a company called Autograph.
What to do with DKNG shares
Most investors do not realize the effect of sweeping changes to gambling laws and regulations in the United States.
Perhaps now is a good time for value investors who are willing to pay a reasonable price to take a look at DKNG stock. My analysis shows it’s worth at least 56% more at $ 80.93 per share.
As of the publication date, Mark R. Hake does not hold a position in any of the stocks mentioned in this article. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and run the Total Value of Return Guide that you can consult here.