11:40 AM EDT, 08/13/2024 (MT Newswires) -- DraftKings ( DKNG ) is facing profitability challenges in the near term due to higher promotional spending to acquire new customers but is expected to see long-term revenue growth from a higher customer count, Morgan Stanley said in a note Tuesday.

The firm said it is updating its estimates after taking a user economics deep dive on DraftKings ( DKNG ) following the company's weaker-than-expected Q2 revenue and earnings before interest, taxes, depreciation and amortization.

Morgan Stanley lowered adjusted EBITDA estimates but raised revenue expectations to reflect the Q2 results, market trends, updated industry forecasts and management commentary.

User economics, including customer acquisition costs, retention rates and spending per active user, indicates that despite initial negative revenue, the increased customer base should lead to stronger long-term revenue growth, according to the note.

"Discrete items in 2024 will likely prove to be temporary headwinds to profitability, setting the stage for greater flow-through in the year ahead," the firm added.

Morgan Stanley reduced its price target on DraftKings ( DKNG ) stock to $47 from $51 and reiterated its overweight rating.

Shares of the company were up 4.4% in recent trading.

Price: 31.18, Change: +1.33, Percent Change: +4.44