Is DraftKings Stock a Good Buy?

Stocks

The daily fantasy, casino, and sportsbook operator should be in a position to grow, yet its stock has fallen about 80% since September. So how do investors react? 

A startling juxtaposition

Sports betting in the United States seems to be a rocket ship with no plans of slowing down any time soon. Since the legalization of sports betting began rolling out state-by-state in 2018, betting has become ubiquitous in just about all coverage of the NFL, NBA, or MLB.

The major players that have formed in that time are DraftKings, FanDuel, BetMGM, and Caesars Sportsbook. According to a survey from SportsbooksOnline.com, more Americans are betting than ever before, with DraftKings being the brand recognized most nationwide. One may think that this would be a recipe for success on Wall Street, but that has not been the case.

According to data from Nasdaq, $DKNG was regularly trading around $60 per share as recently as September. However, the price has taken quite the tumble in the past 8 months, closing as low as $11 per share recently.

So why hasn’t DraftKings’ brand awareness translated to something greater for traders?

Sports betting in the US hits a roadblock

There has been a veritable gold rush to the US sports betting market in recent years. Paid fantasy operators like DraftKings and FanDuel led the way and remain most prominent, but they weren’t the only shows in town. International sports betting brands like Bet365 and Betway have also come to play, along with domestic casino brands like MGM and Caesars.

But what these companies have found hasn’t been an easy road to success. In an immature, yet highly sought-after market, many companies have needed to go above and beyond in their marketing and promotional efforts to attract users to their apps.

This has proved costly and some organizations have tapped out entirely. Churchill Downs’ TwinSpires is going back to offering horse racing betting exclusively after a middling venture into the world of online sports betting. Even Caesars Sportsbook has dialed back its marketing after spending a ton on advertising during the NFL season and prior to the launch of legal sports betting in New York this past January.

The US online sports betting market has been a tough nut to crack and not the easy moneymaking venture some would have thought.

Other competitors on the stock market such as $PENN (Barstool Sportsbook & theScore Bet), $CZR (Caesars Sportsbook), and $WYNN (WynnBET) have all suffered similar dips in their stock prices, but DraftKings’ seems to be the most dramatic.

So how does DraftKings fit into all of this?

Despite being an industry leader, even DraftKings has still struggled. Sports betting has been ultra-competitive and with there being a constant fight for new markets across the country as each state launches in its own time, the battle for bettors has been constant and ongoing.

DraftKings is currently available online in the most states across the country, and its constant expansion certainly has benefits and drawbacks.

It isn’t cheap to pay fees and taxes to move into a new state and the cost of acquiring new customers via promotional opportunities can sometimes be costly with major marketing campaigns, as well as free bets and refunds being handed out like candy. 

In Q1 2022, DraftKings posted net losses of $468 million, an increase from $346 million the previous year. Revenue improved year-over-year, increasing from $312 million to $417 million. So, the past year of expanding sports betting hasn’t exactly been all sunshine for the most recognizable sports betting brand in the US. 

DraftKings has been a bit unique as a fairly independent entity in this field FanDuel is owned by international betting conglomerate Flutter, while competitors Caesars Sportsbook, BetMGM, and Barstool Sportsbook all operate under the umbrellas of parent companies working in various arenas outside of online sports betting.

This has led to rumors of a possible acquisition – especially with ESPN and Disney looking to carve out their piece of the pie in the online sports betting industry. Could DraftKings be bought up by a bigger fish? Only time will tell.

The Bottom Line: Buy, sell, or hold?

Everything hasn’t gone as smoothly as DraftKings would have hoped since the legalization of sports betting. Despite being the big man on campus, the Boston-based company has struggled to turn a profit.

However, it would be hard to say that the future holds no prospects. Sports betting is becoming legal in more and more states across the country, with Maryland, Kansas, and Ohio all due to launch betting in their states in the coming months. Plus, the market will mature and there will surely be less of a mad dash to acquire customers as time rolls on.

When you factor in the possibility of a major acquisition by a company like Disney, the long-term outlook looks bright for DraftKings. Near their all-time low, now may be a good time to BUY.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.