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DraftKings shares are up more than 5% Monday following the upgrade, trading around the $25.40 mark. Analysts told investors in a note that they are upgrading the stock based on higher revenue growth and greater flow through to EBITDA.
Analysts outlined three factors that are driving higher growth: A faster penetration in new markets, an improvement in structural hold, and a higher GGR per player.
“DKNG has seen an acceleration in how quickly they penetrate new states, given the scale they now have, so that suggests they will ramp faster in new states in the future,” wrote analysts.
They added that the improvement in structural hold comes “as parlays become a greater % of total – and in-play mix also continues to grow, though parlay mix is the bigger driver for sportsbooks’ structural hold.”
“We see runway for DKNG to deliver a +20% revenue CAGR from ’23E to ’26E given that the company is penetrating new states faster, seeing improvements in structural hold, and existing state vintages are growing attractively with higher GGR per player,” analysts concluded.
