DraftKings stock receives downgrade from Buy to Neutral

Yahoo Finance Live examines DraftKings shares after the sports betting company received a stock downgrade from Roth Capital.

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JOSH SCHAFER: My play today is going to be DraftKings, shares up marginally today about 1 and 1/2%, but really, why I'm watching this stock today, guys, is off a new note from Ed Engle at ROTH Capital Partners. Now Engle reiterated his $15 price target. But he downgraded the stock from buy to neutral, citing Fanatics' anticipated launch, an online sportsbook, in the first quarter of 2023, writing that the launch can, quote, "disrupt the profitability narrative for DraftKings."

Fanatics has been valued at $31 billion and most recently raised $700 million in November, Seana, that they're planning to add and sort of go with the sportsbook, with that $700 million. And what I think is interesting that he also pointed out here, with the profitability for DraftKings, DraftKings is projecting profitability in Q4 of 2024.

You look at the other names in that space-- MGM, Caesars, Penn-- FanDuel thinks they might get full year profitability next year. When Fanatics comes in and starts promoting, it's like someone putting something on sale. DraftKings is going to have to put something on sale to sell, too. You're going to see more promotions come back into this space. Does that profitability mark push it out even further? And if it gets pushed out even further, I think some of these investors are going to start to get disappointed because that line keeps moving further and further out.

SEANA SMITH: Yeah, and that certainly seems to be the case that more and more analysts on the Street are making here in recent weeks. JP Morgan also recently downgrading DraftKings just about two weeks ago. A little bit, I guess, concerned just about the outlook of the company and what exactly we'll see in terms of results over the next couple of quarters.

My question, though, is the upside potential of a lot of these sports betting companies in terms of the near term because a lot of that, I think you can make the argument that that's already been priced in. And the next couple of quarters is going to be pretty uncertain until we see much larger adoption. And I'm not so sure as to what's going to be driving that right now.

JOSH SCHAFER: And I think part of that, too, is the market share, right? When we talk about more adoption, you're going to see more legalization next year. We know a big state like Massachusetts is coming online. Ohio is opening up more.

But I think it's also the market share, which DraftKings has positioned well. We know that. They're second in market share. They're just not necessarily making money off a lot of those customers. But it takes about three years for those states to turn profitable usually. And we are building that base up, right, when we think about some of the states that opened up this year. That three years is coming sooner and sooner for some of them.

SEANA SMITH: You just have to have a longer term outlook if you're betting on some of these names.