DraftKings’ Q2 report arrived with some notable positives, but investors aren’t liking the big picture.
DraftKings (DKNG -12.01%) stock is getting hit hard in Friday’s trading. The online gambling specialist’s share price was down 11.6% at 11:30 a.m. ET, according to data from S&P Global Market Intelligence.
DraftKings published its second-quarter results after the market closed yesterday, delivering mixed results. While the company’s earnings beat expectations, sales for the period fell short of Wall Street’s target. But the key reasons for the sell-off are more complicated than the business’s top-line and bottom-line performance.
DraftKings’ Q2 performance was actually pretty strong
In the second quarter, DraftKings posted non-GAAP (adjusted) earnings per share of $0.22 on sales of $1.1 billion. While the performance beat the average analyst estimate’s call for an adjusted profit of $0.19 per share, revenue fell short of the target for $1.12 billion in sales.
With sales still increasing roughly 26% year over year and profits coming in significantly better than anticipated, it was hardly a bad quarter for the business. But management lowered the company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), and investors are also moving out of growth-dependent stocks today due to a renewed focus on macroeconomic risk factors.
What comes next for DraftKings stock?
DraftKings now expects adjusted EBITDA for this year to come in between $340 million and $420 million. The new target range reflects a significant step down from its previous guidance for adjusted EBITDA to be between $460 million and $540 million.
With today’s pullback, DraftKings stock is now down roughly 11% across 2024’s trading. It’s also off approximately 35% from its 52-week high. On the other hand, the company still has a growth-dependent valuation and is trading at roughly 49 times this year’s expected adjusted earnings.
While the business has been serving up impressive momentum for sales and margins, its valuation profile sets the stage for downside risk if macroeconomic concerns continue to shape the broader market. The Federal Reserve’s recent meeting suggests that an interest rate cut will finally arrive in September, but recent data for jobs growth and jobless claims have rekindled fears that the U.S. economy could be headed for recession. If so, that could complicate the valuation picture for DraftKings and other growth stocks.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.