Gambling platform DraftKings (DKNG) is out to boost its profitability and has a new idea to do the job. But investors aren’t exactly happy about this plan; it’s got them either sufficiently terrified or enraged to plain old walk away, and they did. In droves. DraftKings was down around 10% in Friday afternoon’s trading session as a result. The plan revolves around DraftKings adding a surcharge to consumers whose states assess the highest tax rates on gambling winnings.
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It is set to go live next year and will feature surcharges for anyone whose state has multiple gaming operations or where tax rates exceed 20%.
The move comes after DraftKings announced its first-ever profitable quarter since becoming a publicly-traded operation and is intended to help keep DraftKings profitable. But DraftKings plans to make no secret of this move, and by doing so, might be working to make its own feelings known about states’ tax structures. It looks for “…some customer(s) drop-off,” but hopefully, not enough to ruin the streak-in-the-making it’s got now.
Getting Better with Time
The fact that DraftKings managed a profitable quarter for the first time likely isn’t lost on anyone. Interestingly, it managed to do so with a mixed overall earnings report; while the company turned in better-than-expected earnings, it faltered a bit in overall sales. Indeed, the company brought in $1.1 billion for the quarter but slightly missed the consensus estimate of $1.113 billion.
However, the biggest problem for DraftKings right now might be the larger economy. With concerns about a recession growing, investors are pulling back from “growth-dependent” stocks like DraftKings. It doesn’t help that you need disposable income to gamble, and with inflation still horrendous, that’s about the wrong condition for DraftKings to really succeed going forward.
Is DraftKings a Buy, Sell, or Hold?
Turning to Wall Street, analysts have a Strong Buy consensus rating on DKNG stock based on 25 Buys and two Holds assigned in the past three months, as indicated by the graphic below. After a 7.87% rally in its share price over the past year, the average DKNG price target of $52.17 per share implies 64.78% upside potential.
