Sunday, 3 November 2024
by BD Banks
Like plenty of other younger growth stocks, online sports betting company DraftKings (NASDAQ: DKNG) has experienced its fair share of ups and downs since going public in April 2020. After reaching an all-time high in March 2021, the stock has lost just over half of its value.
While there are plenty of challenges and hurdles that DraftKings will need to iron out (along with the rest of the sports-betting industry), there is plenty of long-term growth potential ahead.
DraftKings came to prominence because of its daily fantasy and sports betting, but it has been making intentional efforts (mainly through acquisitions) to expand into other markets.
In 2022, it acquired Golden Nugget Online Gaming to pick up steam in the iGaming industry, and the deal has been paying off since then. In a recent study by research company Eilers & Krejcik Gaming, DraftKings and Golden Nugget’s gaming apps were ranked No. 1 and No. 2 overall, respectively.
DraftKings also acquired the digital lottery platform Jackpocket this year to tap into the growing lottery industry. The company says it expects Jackpocket’s integration to contribute positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2025.
Going beyond sports betting allows DraftKings to reduce risk by becoming less reliant on a single market while also expanding its customer base. The latter also allows DraftKings to cross-sell its various products and lower its customer acquisition costs, which were down 40% year over year in the second quarter.
While DraftKings has been focused on capturing market share, profitability has taken a back seat. However, recent trends indicate DraftKings should be profitable by generally accepted accounting principles (GAAP) standards for the full year in 2025.
In the second quarter, DraftKings generated $1.1 billion in revenue, up 26% year over year. The successful quarter led management to raise its full-year revenue guidance from a range of $4.80 billion to $5.00 billion to between $5.05 billion and $5.25 billion, or a 38% to 43% year-over-year increase.
Data by YCharts.
DraftKings expects its adjusted EBITDA in 2025 to come in between $900 million and $1 billion, marking a huge milestone in the company’s history.
Through the first six months of 2023, DraftKings reported a $459 million operating loss, but a year later, that number has shrunk to just $171 million, a huge improvement.
When the U.S. Supreme Court first announced that states would have the authority to regulate sports betting on their own, only a few states had some form of legalized sports betting. Six years later, the number has jumped to 38 plus Washington, D.C.
DraftKings has two main ways to grow: attracting new customers in markets where it already operates, and entering new states that legalize sports betting in the future. There are no set timelines for the latter, but you can bet (no pun intended) many of these holdouts will eventually join the majority as the potential tax revenue becomes too attractive to ignore. Since June 2018, states have collected over $6.3 billion in taxes from sports betting.
DraftKings is well positioned for both opportunities, and it remains a top platform and stock in this space.
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Stefon Walters has positions in DraftKings. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.