DraftKings is expected to fall short of second-quarter core earnings expectations, primarily attributable to heightened customer acquisition costs and less favorable hold outcomes, according to a recent analysis from BofA Securities. The brokerage has adjusted its price target for DraftKings to $50, down from a previous target of $54, following revised lower earnings per share expectations through 2026. For the upcoming second quarter, BofA has reduced its estimate for earnings before interest, taxes, depreciation, and amortization (EBITDA) to $130 million, notably below DraftKings' guidance of $150 million.
Scheduled to report its quarterly results on August 1, the company is already facing investor expectations for a potential miss. Analyst Shaun Kelley emphasized that investor focus may shift towards the 2024 guidance and the outlook for customer acquisition strategies. In this light, BofA has revised its 2024 per-share loss expectations to $0.58 down from $0.52, alongside a cut in its 2024 EBITDA forecast to $440 million, contrasting with the company’s current guidance range of $460 million to $540 million. The adjustment in the full-year EBITDA target reflects an anticipated $40 million impact resulting from a new Illinois tax rate, a projected $20 million EBITDA miss for the June quarter, and an additional $40 million attributed to increased spending on customer acquisition. Additionally, BofA has lowered its earnings per share target for 2025 to $0.28 from $0.34, and for 2026, the target has decreased to $0.95 from $1.
This adjustment includes embedded pressures anticipated for the second half of 2024 through 2025, mainly due to sustained elevated customer acquisition costs. Despite the short-term pressures facing DraftKings, BofA has maintained a 'buy' rating on the stock, citing a remarkable 36% year-to-date handle growth within the thriving adult gaming sector.
Kelley affirmed confidence in DraftKings’ capability to facilitate robust flow-throughs in the near future, despite the current challenges they are encountering..