DraftKings Inc. DKNG is likely to benefit from customer acquisition strategies, new product rollouts and Jackpocket Integration. Also, the emphasis on the surcharge solution bodes well. However, elevated marketing expenses are a concern.

Factors Driving DKNG Stock

Strong Customer Acquisition: DraftKings has demonstrated significant progress in acquiring new customers in its Online Sports Betting and iGaming sectors. Customer growth surged by nearly 80% year over year in the second quarter of 2024. Even in the absence of new state launches, DraftKings continues to thrive, displaying resilience and efficiency in its customer acquisition strategies. The company anticipates this trend to persist throughout the rest of 2024 and potentially into 2025.

Enhanced Product Offerings: DraftKings is enhancing its product offerings to differentiate itself from competitors. New features, such as in-house player prop wagers across multiple sports and progressive parlays, are attracting more users to its Sportsbook platform. Furthermore, the company is planning to introduce a "bet and watch" experience with NFL streaming, which should boost user engagement.

Jackpocket Integration: The integration of Jackpocket, a third-party lottery service, is delivering positive results. DraftKings is on track to meet its multi-year financial guidance related to the acquisition with expectations of generating positive adjusted EBITDA by 2025. The addition of Jackpocket strengthens DraftKings' product offerings, further enhancing its competitive edge in the growing digital lottery and iGaming markets.

Positive Adjusted EBITDA Outlook: DraftKings is reiterating its goal of reaching $900 million to $1 billion in adjusted EBITDA for fiscal year 2025. This confidence is driven by the company’s strong customer acquisition, efficient operations, and the integration of new products and services, such as Jackpocket. Moreover, DraftKings’ ongoing investments in new features and NFL streaming integration are expected to drive higher customer engagement and retention.

Surcharge Solution: DraftKings is addressing the challenge of operating in high-tax states, such as Illinois, by planning to implement a gaming tax surcharge starting in January 2025. This move will apply to states where tax rates exceed 20% and have multiple sports betting operators. By doing so, DraftKings aims to protect its margins and improve its adjusted EBITDA in these highly competitive markets. This strategic move will likely unlock additional growth and profitability for the company in 2025 and beyond.

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Shares of DKNG have gained 35.8% in the past year compared with the industry’s growth of 30.1%.

Concerns for DKNG Stock

DraftKings remains heavily reliant on costly marketing campaigns to maintain growth. The company expects sales and marketing expenses to increase at a mid-to-high single-digit rate in 2024. Although this investment in brand building may attract more customers in the short term, it continues to eat into profitability.

Given the competitive nature of the online sports betting and iGaming markets, DraftKings may struggle to achieve sustainable margins if marketing costs remain high.

DKNG’s Zacks Rank and Stocks to Consider

DraftKings currently carries a Zacks Rank #3 (Hold).

Some top-ranked stocks in the Zacks Consumer Discretionary sector are Norwegian Cruise Line Holdings Ltd. NCLH, Carnival Corporation & plc CCL and Cinemark Holdings, Inc. CNK. Presently, NCLH & CCL sport a Zacks Rank #1 (Strong Buy) each, whereas CNK carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Norwegian Cruise Line has a trailing four-quarter earnings surprise of 5.7%, on average. The stock has rallied 72.7% in the past year. The Zacks Consensus Estimate for NCLH’s 2024 sales and earnings per share (EPS) calls for growth of 9.9% and 127.1%, respectively, from the year-ago levels.

Carnival has a trailing four-quarter earnings surprise of 318.1%, on average. The stock has surged 87.9% in the past year. The Zacks Consensus Estimate for CCL’s 2025 sales and EPS indicates an increase of 3.5% and 26.7%, respectively, from the year-ago levels.

Cinemark Holdings has a trailing four-quarter earnings surprise of 145.9%, on average. The stock has increased 78.7% in the past year. The Zacks Consensus Estimate for CNK’s 2025 sales and EPS indicates an increase of 11.4% and 29.5%, respectively, from the year-ago levels.

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