DraftKings Could Be 2023 Small Stock Winner

DraftKings (NASDAQ: DKNG) shares lost 59.77% in 2022, lowering its market valuation to $4.99 billion as of Thursday.

That’s low for a mid-cap and far from its $35 billion market value top. Some analysts believe the battered name of the game will return in 2023.

In a recent research, Jefferies equity strategist Steven DeSanctis suggests that lesser market cap businesses like DraftKings could recover next month.

It’s likely given the first 11 months’ poor performance. “January is better than December,” he wrote. “In January of the following year, smaller market cap stocks outperform when most equities lose money.”

DraftKings is one of 20 smaller companies Jefferies expects to rebound in 2023. It’s the only game-related consumer discretionary stock on the list.

DraftKings’ 2023 outlook depends on how much less money it loses.

DraftKings announced in November that its 2023 EBITDA loss will be between $475 million and $575 million, much more than the average projection of $426 million on revenues of $2.8 billion to $3 billion.

The online betting operator predicted a positive EBITDA by the fourth quarter of 2023. Since this estimate is baked into the stock, DraftKings must reach the profit timeline and cut costs dramatically. Investors are tired of the operator’s wasteful spending.

Sports betting and iGaming legalization could help DraftKings rebound in 2023.

“High-yield spreads are nearing 5%, below their long-term average, as the larger picture improves. The dollar has lost strength and volatility since its peak, “”DeSanctis”

Since rivals Barstool Sportsbook, BetMGM, and Caesars Sportsbook are nearing profitability, investors’ patience may be tested. FanDuel, the largest online sportsbook, may start making money in 2023.

In 2023, another gaming stock could do well.

Analysts are optimistic about more than just DraftKings as we head into the new year. UBS said that Endeavor Group Holdings, Inc. (NYSE: EDR), which owns the Ultimate Fighting Championship (UFC), could be a winner in 2023.

The bank says, “We think EDR is in a good position to take advantage of long-term trends in Media, such as the rise of sports rights inflation, and its revenue streams are generally not very sensitive to economic changes.”

This year, Endeavor bought the OpenBet sports data business from Light & Wonder. Some of the largest sportsbook operators are among the clients of this unit.