DraftKings Shunned Even as Wall Street Heavyweights Say Buy
(Bloomberg) -- Investors are shunning DraftKings Inc. despite signals from some of Wall Street’s most prominent names to buy the shares of the former high-flying online gaming company.
Shares of the seemingly ubiquitous betting site have slumped about 40% since their March record amid a dearth of top sporting events and after the company reported quarterly results. The selloff has widened the gap between its stock price and the average analyst target by the most ever, according to data compiled by Bloomberg.
And while that has led to Goldman Sachs recommending investors buy the dip and Cathie Wood’s ARK Investment Management lapping up shares of the Boston-based company, most investors aren’t budging. The stock slumped 4.3% to $42.11 on Wednesday, the eighth decline in the past 10 trading sessions. After ending last year up more than 300%, the shares have lapsed into oversold territory for the first time since it went public via a reverse merger in April 2020.
To be sure, the U.S. stock market has also been in a tailspin amid growing concerns of rising inflation with the S&P 500 Index sinking 2.1% Wednesday, the biggest drop since Feb. 25.
DraftKings has been caught under pressure alongside high-flying companies that have yet to turn a profit like Uber Technologies Inc. and Teladoc Health Inc. as inflation fears whipsaw the broader market. While the company posted revenue that beat analyst expectations, the wider-than-expected loss drew ire from analysts and investors. DraftKings posted a loss of 87 cents a share, worse than analysts’ estimate of about 44 cents, driven by sales and marketing expenses. It also reported an adjusted loss of 36 cents per share.
“That kind of result just isn’t enough to get it done in this marketplace,” Needham analyst Bernie McTernan said by telephone. “This is going to be quite the opportunity for people to step in now” though catalysts like a March investor day and some state legalizations of online gambling are in the rear-view mirror.
Still, Goldman’s Stephen Grambling, who is among the stock’s 20 buy-rated analysts, said investors should “buy the dip” as the company’s strong revenue outlook showcased the momentum. The market should return its focus to improving fundamentals for the company and the broader sports betting market, the analyst argued.
The latest drop for DraftKings mirrors the slide for peer Penn National Gaming Inc. which also released results that were stronger than analysts expected last week.
“DraftKings sticks out like a sore thumb in terms of way underperforming with a pretty decent print,” Needham’s McTernan said. “With Penn it was a beat-and-raise quarter where the regional casino business is just on fire and I think you’ll have the best of both worlds with Penn in the reopening and leveraging the Barstool brand.”
The latest drop for DraftKings pushed it to the lowest level in six months, while Penn National’s 8.4% drop on Wednesday pressured it to close at the lowest since Dec. 11.
©2021 Bloomberg L.P.