Should You Now Invest in DraftKings? Share Price Analysis

Note: These are just the author’s thoughts, not official investing advice.

Ups and downs

DraftKings is one of the biggest sportsbook operators in the US market today. It started life as a daily fantasy sports platform and, following the repeal of the federal wagering ban in 2018, has battled it out for supremacy with FanDuel in the sports betting space.

DraftKings stock went public in April 2020 to much fanfare and the price trebled to more than $60 in less than a year. This exuberance came at a time when markets were booming following an initial pandemic dip. When the easy money left the market, DraftKings’ share price hit the floor, stumbling close to the $10 mark.

things are now looking up for the Boston-based company once more

However, things are now looking up for the Boston-based company once more. VegasSlotsOnline News has taken a quick look at all aspects of the business to decide if it is worthwhile investing in DraftKings today.

A little background

DraftKings started in 2012 as a daily fantasy sports platform and gradually built itself into a dominant player in the real money contests space. The Federal Trade Commission blocked an attempt to merge with FanDuel in 2016 due to competition concerns.

DraftKings embraced the ending of the federal ban on sports betting in May 2018, quickly launching online and retail sportsbooks across the country as states legalized the activity.

In February 2019, it took its first step into the higher-margin online casino space when it launched an iGaming platform in New Jersey. It also has a separate horse racing wagering platform called DK Horse and operates online sportsbooks in 24 of the 29 states that currently allow them.

Causes for concern

DraftKings went public at a time when many high-profile reverse mergers were taking place. Retail traders were pumping huge sums into popular stocks, which led to companies like DraftKings, Coinbase, and Robinhood exploding in value after becoming publicly tradable. It wasn’t long before they experienced dramatic declines, however.

DraftKings is still yet to turn a profit and is plying its trade in a sector that has relatively low margins

Issues with DraftKings started due to high costs and underwhelming estimates, which caused people to retreat to safer, profit-generating businesses. In contrast, DraftKings is still yet to turn a profit and is plying its trade in a sector that has relatively low margins, although it believes it can achieve profitability in 2024.

There’s also a lot of competition, with the company spending huge sums to try to acquire customers. Its total outlay on marketing and sales in FY 2022 was a whopping $1.2bn, and this figure is predicted to have grown even larger in FY 2023.

The entry of big players into the sports betting scene recently, like ESPN Bet and Fanatics, also means that DraftKings isn’t able to bully the competition as much with its deep pockets. Investors will observe to see if these new entrants can cannibalize market share from DraftKings.

Investors also questioned the actions of DraftKings CEO Jason Robins. He spent $1.1m flying around privately in 2022 and his security personnel cost more than $500,000 annually. This type of spending is always a red flag to investors despite the need for high-profile individuals to have some protection.

Plenty of optimism

Despite some of the drawbacks, there’s still a lot to like about DraftKings. It has a head start whenever a new sports betting market opens due to its existing base of fantasy users, allowing it to quickly gain a foothold. Profit margins also improve as markets mature.

The US sports betting market still has a lot of runway, with the country’s two most-populated states not yet legalizing the activity – California and Texas. Total gross gaming revenue for sportsbook operators nationwide was $7.5bn in 2022 and this number is only going to rise year-on-year as more markets launch and mature. The same goes for iGaming, for which just six states are currently live.

DraftKings is the superior operator with control of 31% of the US online gambling market

DraftKings is in a strong position, holding a 34% share of the US sports betting market as of November 2023, only behind FanDuel boasting 39% of the market. When you add in iGaming, DraftKings is the superior operator holding control of 31% of the US online gambling market versus 30% for its arch-rival.

Financial results are also on the up for DraftKings. Its Q3 2023 sales were higher than the forecast, which led to an 11% jump in the share price. Its average monthly unique payers was 2.3 million and the average revenue per customer hit $114. DraftKings estimates that it will reach a $400m adjusted EBITDA in 2024, with its net losses dropping significantly year-on-year.

The company has made some savvy moves in the media space too. DraftKings acquired the betting broadcaster VSiN, as well as partnering with various podcasts, sports teams, and leagues. It also is reportedly in talks with Barstool Sports about a significant marketing agreement that would allow it to leverage Barstool’s passionate sports fan base.

A glimpse into the future

DraftKings has predominantly stuck with the US market and has not stretched itself too thin by trying to expand overseas. Apart from Ontario, you won’t find any non-US DraftKings betting platforms. It is beginning to get its marketing costs under control and has an entrenched position in the ever-growing US online gambling market.

DraftKings will likely continue to look at potential acquisition opportunities. It tried to hijack Fanatics’ acquisition of PointsBet’s US assets and was also in talks during the summer about a possible takeover of 888 Holdings. Chances are, this tactic will continue as we move further into 2024.

share price looks like it’s in an advantageous position

DraftKings’ share price looks like it’s in an advantageous position currently. At $39.55, it’s still well below its all-time high of almost $72 and has steadily increased over the past two years, growing 79% from January 2022. The company appears to have steered the ship the right way and this should lead to rewards for loyal investors.

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• Source: https://www.vegasslotsonline.com/news/2024/01/31/should-you-invest-in-draftkings-vso-share-price-analysis/