DraftKings (NASDAQ: DKNG) posted a solid report for Q1 and that is against a tough comp and high expectations. The results show the business firing on all cylinders and driving unexpected leverage. The news has the market up about 5% following the report confirming an uptrend that may not end soon. The guidance is also good and the addressable market is large. Based on the numbers, it looks like DraftKings business could more than double over the coming years and that’s without all 50 states legalizing gambling.

Another Jewel In DraftKings Crown

DraftKings was expected to have a solid quarter in Q1 because of its growing footprint, March Madness, and opening up two important jurisdictions just before basketball fever set in. The results are better than expected due to customer acquisition and engagement which outpaced company forecasts. 

The nearly $1.8 billion of net revenue is up 53.2% compared to last year and beat the consensus by 350 basis points. The company’s hold rate also plays into the strength, aided by engagement and improved business reinvestment and ad spending. Monthly active users are up 23% while average revenue per MUP is up 25%. 

Perhaps the best news is that the business is scaling well. The company reported better-than-expected margins aided by engagement, user growth, and hold rates. The net result is that adjusted earnings are positive $0.03 compared to the expected loss. The $0.03 is $0.14 better than expected and led the company to raise its guidance, another factor supporting the stock price in early trading. 

DraftKings raised the midpoint targets for 2024 revenue and earnings to above the consensus estimates reported by Marketbeat. The company forecasts $4.9 billion in revenue compared to the $4.82 consensus and increased its target for adjusted EBITDA growth by nearly 900 basis points. Because the company is gaining traction and outperforming now, and the Summer Olympics are still ahead, the guidance could be light. 

Analysts Lead DraftKings to New Highs

The analysts are leading DraftKings to new highs. Marketbeat tracks a single update within the first eighteen hours of the release but it aligns with the trend. It is a reaffirmed Buy and $58 price target from Needham. The rating compares well to the Moderate Buy consensus rating which has risen from Hold since last year, and the price target is at the high end of the expected range. 

The consensus target is $47.40, up more than 100% in the last twelve months, and forecasts a 5% upside from the post-release price action. The high end of the range is $60. All twenty price target revisions since February this year are upward to levels above consensus, a trend that is not expected to end now. Institutional activity is also bullish for this market. Institutions own only 38% of the stock but have bought on balance for three consecutive quarters and are unlikely to alter that trend soon. 

DraftKings Updraft Gains Momentum

DraftKings stock price action has been in an uptrend for the last eighteen months and it is expected to continue. The market recently moved above a critical pivot point, entering a complete reversal within a trading range. The post-release action has the market up, confirming support at the 150- and 30-day EMAs, aligning with a trend-following signal in the stochastic. MACD is lagging but may fire its signal soon. Critical resistance is near $47.50. A move above that would be bullish and likely take this market up into the $50 range. 

The risk for investors in this consumer stock is the pace of growth. DraftKings is outperforming expectations but the pace of market growth will be slow. The next jurisdictions to legalize sportsbook or iGaming businesses aren’t expected to pass for at least a year if that soon. 

The article "DraftKings Royally Good Results Lift Market: Uptrend Continues" first appeared on MarketBeat.