Institutions Aggressively Buy Into Draftkings Potential 

Buy The Downdraft In Draftkings 

Shares of Draftkings (NASDAQ: DKNG)  are plunging in the wake of the Q4 earnings release but we think this is the time to buy the stock. The plunge is driven by the guidance which is expecting revenue growth but a wider than anticipated loss on the bottom line. The mitigating factor is that the loss will be driven in large part by reinvestment in the company and expansion into new territory. In our view, that will drive value for shareholders that will support higher prices down the road. And we think the institutions see the same potential. 

The institutions have been aggressively buying Draftkings for the last year and their activity has been bullish so far in 2022. The net of activity is worth about $5 billion in favor of the bulls or about 55% of the market cap pre-earnings release. A good 1.3% worth of the market cap was purchased in Q1 2022 alone and we think that figure will rise with share prices at such low levels. 

The analysts have been silent about the earnings report so far but we do expect that to change. We aren’t looking for many downgrades but they may come, what we are looking for is a lower consensus price target but that may not come either. As it is, the consensus price target is 190% above the post-release price action and setting up a potentially large rebound later in the year. The caveat is that analyst activity has been negative (in the form of lower prices targets) so far this year and that is providing downward pressure to the market. 

DraftKings Blows Past Consensus, Guides For Growth 

DraftKings had a fantastic quarter despite weakness related to the NFL and the outcomes of games. The company reported $473 million in net revenue for a gain of 46.9% over last year driven by user growth, retention, and cross-selling between platforms. The revenue also beat the analyst's consensus and we see this strength continuing in 2022. On an acquisition-adjusted basis, core DraftKings revenue grew more than 100% with monthly-unique-users up 32% and average revenue per user up 19%. 

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Moving down to the bottom line, the company reported a net loss but one in line with expectations. The problems arise with the guidance which projects both an above-consensus increase in revenue and set the target loss at a level both above the previous year and the consensus estimate which is not good for the profitability outlook. 

Short-Sellers Drive DraftKings Back To Support 

Part of the problem with DraftKings is the market fundamentals. The stock is more than 12.5% short as of the latest report and that is a big weight for the market to bear guidance or not. The good news is that the post-release drop has price action exactly at the most recent support level, a support level that has been very strong in the past. We aren’t saying DraftKings won’t move lower from here, only that the bears should expect a fight from the bulls. 

The Technical Outlook: DraftKings Might Be Bottoming 

Shares of DraftKings are testing support at $18.40 for the second time this year and we think it will be confirmed. The bounce from support has, so far, been accompanied by bullish indicators that are consistent with a bottom if not a reversal. At worst, we are expecting to see DraftKings' share price move sideways with a chance of falling through support. At best we are expecting to see share price sideways with a chance of moving higher but much later in the year. Until then, the stock is presenting a deep discount to recent activity and is still trading above key support and levels at which institutional buying has been strong. We’ll see where it goes from here. 

Companies in This Article:

Company	Current Price	Price Change	Dividend Yield	P/E Ratio	Consensus Rating	Consensus Price Target
DraftKings (DKNG)	$35.52	+1.8%	N/A	-62.32	Moderate Buy	$47.48