Did you know that DraftKings Stock (DKNG) has soared more than 180% in 2023, outperforming the S&P 500 by over 150%? What drives this phenomenal growth, and how can you benefit from it? We will reveal everything you need to know about DraftKings Inc, one of the leading players in the online sports betting and gaming industry.

DraftKings Inc's Overview

What is Draftkings

DraftKings Inc is a leading online sports betting and fantasy sports company founded in 2012 by Jason Robins, Matthew Kalish, and Paul Liberman, former Vistaprint employees. Headquartered in Boston, Massachusetts, the Company operates in 14 states where online sports betting is legal and regulated, as well as in Canada and some international markets.

The company comprises three segments: Online Gaming, Media, and Technology. The Online Gaming segment offers daily fantasy sports, sports betting, and casino games through its platforms and partnerships. The Media segment operates various content platforms and networks, such as DraftKings Sportsbook Live, DK Live, DK Nation, DK Playbook, DKTV, and VSiN. The Technology segment provides software solutions and services for the online gaming industry, such as SBTech, which powers the company's sportsbook and casino platforms.

The company's CEO is Jason Robins, who has led it since its inception. Robins has a background in marketing and analytics and previously worked at Capital One and Vistaprint. Some of the company's top shareholders and investors include Shalom Meckenzie, PAR Capital Management, Raine Group LLC, Major League Baseball (MLB), The Walt Disney Company (DIS), and Eldorado Resorts (ERI).

Key Milestones

Some of the key milestones in the company's history are:

  • In 2012, the company launched its first product, a one-on-one baseball competition, to coincide with MLB's opening day.
  • In 2014, the company acquired its rival DraftStreet, increasing its user base by 50%.
  • In 2015, the company became the official daily fantasy sports partner of the NFL.
  • In 2018, the company launched DraftKings Sportsbook, the first legal, mobile, and online sports betting platform in New Jersey.
  • In 2020, the company went public through a reverse merger with SBTech and Diamond Eagle Acquisition Corp., becoming the only U.S.-based vertically integrated sports betting operator.
  • In 2021, the company acquired VSiN, a sports betting media network, to expand its content offerings.

DraftKings Inc's Business Model and Products/Services

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DraftKings' revenue sources are diverse:

  • Tournament Participation: For daily fantasy sports contests, DraftKings charges fees (typically 10% of prize pools) for entries, distributing the remaining amounts among winners based on performance.
  • Sports Betting and Gaming: In legal and regulated states, DraftKings gains revenue by retaining a portion (around 5%) from wagers, known as the vig or juice, with payouts adjusted accordingly.
  • Advertising: Advertising on its platform and referrals to partners, such as FanDuel and BetMGM, yield revenue.
  • B2B and NFT: DraftKings offers B2B services and a proprietary NFT marketplace, generating revenue from technology solutions, data analytics, content creation, and NFT transactions.

DraftKings' main products encompass:

  • Daily Fantasy Sports: Users craft virtual teams of real athletes to compete in contests across various sports, vying for cash prizes.
  • Sports Betting: Enabling wagers on outcomes in diverse sports and markets.
  • Gambling products: Offering real-money online games such as blackjack, roulette, slots, and more.

DraftKings' multi-faceted approach positions it as a versatile player in the online entertainment and wagering space.

DraftKings Inc's Financials, Growth, and Valuation Metrics.

DraftKings Inc is a leading online sports betting and fantasy sports company that has been growing rapidly in the past few years. In this section, we will review its financial statements, key financial ratios and metrics, and compare its valuation multiples to its peers and the industry.

Review of DraftKings Inc's Financial Statements

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DraftKings Inc's recent financial statement reveals impressive growth across several key metrics. With a market capitalization of $14.57 billion as of August 8, 2023, the company stands out as one of the US's largest online gaming firms. Notably, its net income saw a notable improvement, reporting a loss of $139 million in Q2 2023 compared to a $161 million loss in the same period last year—a 14% YoY enhancement attributed to higher revenue and gross profit. Speaking of DraftKings revenue, it posted a substantial revenue of $875 million in Q2 2023, marking an 84% increase from the same period in 2022. This growth stems from heightened user engagement, product innovation, and expanded market presence.

The company even raised its 2023 revenue projection from $1.2 billion to $1.5 billion, indicating a remarkable 75% to 85% growth rate from the previous year. Profitability also improved with the gross profit margin rising from 25% to 29% YoY and an adjusted EBITDA of $11 million in Q2 2023, a significant positive shift from the -$95 million in Q2 2022, attributed to revenue and gross profit gains despite higher sales and marketing expenses. Return on equity improved by 25 percentage points, from -133% to -108% for the trailing twelve months ending June 30, 2023. While the company still records net losses, the trend is easing.

DraftKings Inc boasts a robust balance sheet. It maintains ample liquidity and manageable debt levels. With $1.09 billion in cash and cash equivalents and $1.32 billion in total debt as of June 30, 2023, its net debt position stands at $230 million. The company's current ratio of 1.47 and a debt-to-equity ratio of 0.13 indicate prudent financial management, suggesting the company can meet short-term obligations and is not overleveraged. Despite significant investments in growth initiatives, DraftKings generated positive free cash flow of $35 million and negative operating cash flow of $470 million for the trailing twelve months ending June 30, 2023, signifying its ability to generate cash from operations despite its growth-focused expenditures.

Key Financial Ratios and Metrics

DraftKings Inc's valuation multiples underscore its substantial growth prospects, but also underscore elevated risks and uncertainties. A comparison of its valuation metrics against peers and the industry highlights this dynamic:

P/E Ratio: While a positive P/E ratio eludes DraftKings due to its non-GAAP profitability, its forward P/E of -36.6x is above the peer (-18x) and industry (19.5x) averages. This suggests an expectation of superior future earnings growth and increased vulnerability to earnings volatility.

P/S Ratio: The company's elevated P/S ratio of 5.45x, relative to peers (3.6x) and the industry (2.2x), underscores a valuation more tied to revenue growth than profitability. It signals robust revenue expansion, but likely lower margins or higher operating expenses.

P/B Ratio: DraftKings boasts a notable P/B ratio of 14.32x, exceeding peers (5.7x) and the industry (6.8x), suggesting significant intangible value or goodwill. This implies strong brand recognition, customer loyalty, or intellectual property, but also potential overvaluation or susceptibility to impairment.

EV/EBITDA Ratio: The company's elevated EV/EBITDA ratio of -11.78x, compared to its peers (-9.3x) and the industry (15.9x), signifies valuation based more on future cash flow potential than current earnings. This points to prospective robust cash flow growth but also potentially lower present earnings or higher capital expenditures.

In summary, DraftKings Inc commands a premium valuation relative to peers and the industry, reflecting high growth prospects amid commensurate risks and uncertainties. Sustained revenue expansion, enhanced profitability, market share growth, and overcoming legal/regulatory challenges could validate these metrics. However, increased competition, reduced user engagement, heightened operational costs, or adverse shifts in the online gaming landscape could exert downward pressure on its valuation multiples.

DKNG Stock Trading Information

Source: TradingView

DraftKings went public on April 24, 2020, through a merger with a special purpose acquisition company (SPAC) known as Diamond Eagle Acquisition Corp, a deal that also encompassed gaming technology provider SBTech. The company's shares get listed and traded on the Nasdaq Global Select Market, identified by the ticker symbol DKNG. The headquarters of DraftKings is in the United States, and its stock transactions are usually conducted in U.S. dollars (USD). The stock is accessible for trading during regular market hours, from 9:30 a.m. to 4:00 p.m. Eastern Time on weekdays, except U.S. market holidays.

Moreover, opportunities for trading extend beyond these hours; DKNG premarket trading occurs from 4:00 a.m. to 9:30 a.m. Eastern Time, and after-market trading takes place from 4:00 p.m. to 8:00 p.m. Eastern Time, all from Monday to Friday. Regarding stock adjustments, DraftKings has not undergone any stock splits following its IPO, and the company does not pay dividends to its shareholders.

DKNG Stock Price Performance Since its IPO

DraftKings stock has experienced a varied trajectory in its historical highs and lows, reaching a high of $34.49 on August 4, 2023 and a low of $10.69 on December 28, 2022. As of August 8, 2023, the current closing price for DraftKings stock rests at $31.63, down 0.35% from the previous trading day.

Noteworthy for its stock price volatility, DraftKings has navigated fluctuations spanning $10 to $35 per share since its IPO. A distinct trend emerges from May 2023, with an upward trajectory spurred by robust revenue growth, positive earnings surprises, and the widening embrace of online sports betting and gaming legalization across the United States.

Several pivotal factors influence DraftKings stock price dynamics:

  • Revenue Growth: DraftKings has demonstrated rapid revenue expansion by auguring its customer base, product offerings, and global presence. In Q2 2023, the company reported $775 million in revenue, a remarkable 320% YoY upsurge that outperformed analyst projections of $691 million. Notably, DraftKings raised its full-year revenue guidance from $3.15 billion to $3.3 billion.
  • Earnings Performance: DraftKings' concerted efforts toward scaling up its operations and enhancing its margins have gradually narrowed losses. Q2 2023 reported a net loss of $0.12 per share, significantly improved from the $0.55 per share loss in the same period the previous year and surpassing expectations that had anticipated a $0.48 per share loss.
  • Legalization Trends: The company capitalizes on the burgeoning trend of legalized online sports betting and gaming in the U.S., gaining opportunities for customer acquisition and revenue growth. By August 2023, online sports betting was legal in 32 states and Washington D.C., while online casino gaming had legal status in 11 states. DraftKings' operations encompass 14 states for online sports betting and six for online casino gaming.
  • Competitive Landscape: Amidst competition from peers like FanDuel, BetMGM, Caesars Entertainment, Penn National Gaming, and Wynn Resorts, DraftKings strives for differentiation through a multifaceted product lineup spanning daily fantasy sports, sports betting, casino gaming, NFT marketplace, media content, and retail sportsbooks. The company leverages partnerships with sports leagues, teams, media entities, and notable figures to amplify its brand presence and foster customer loyalty.

Draftkings Stock Forecast

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Key Resistance and Support Levels of DKNG Stock

The analysis of DKNG stock reveals key resistance and support levels that influence its potential price movement. Resistance levels include $34.50, tied to the all-time high on August 4, 2023, and aligned with the ascending channel's upper boundary since May 2023. Additionally, $32.50 signifies the prior high from July 28, 2023, coinciding with the 78.6% Fibonacci retracement level of the February-May 2023 downtrend. Furthermore, $30.50 represents the resistance faced in June and July 2023 and corresponds to the 61.8% Fibonacci retracement level of the same downtrend.

Support levels comprise $29.00, observed in July and August 2023, after surpassing the $30.50 resistance, aligning with the 50% Fibonacci retracement level of the May-August 2023 uptrend. Additionally, $27.00 reflects prior resistance in May and June 2023, aligning with the lower boundary of the ascending channel established in May 2023. Moreover, $24.00 signifies support found in May and June 2023 after rebounding from the $22.50 low, corresponding to the 38.2% Fibonacci retracement level of the same uptrend.

DKNG Stock Forecast

Analyst insights contribute to understanding the stock's potential. As of August 8, 2023, DraftKings holds a Buy consensus rating from 25 analysts on Yahoo Finance, comprising 18 buy ratings, six hold ratings, and one sell rating. The consensus DKNG price target stands at $29.41, with a high target of $36.00 and a low target of $17.00, implying a 7.0% downside from the current stock price of $31.63. Notably, recent price targets from prominent analysts include Morgan Stanley raising its target to $31.00 with an equal-weight rating, Canaccord Genuity elevating its target to $35.00 with a buy rating, Oppenheimer increasing its target to $32.00 with an outperform rating, Jefferies boosting its target to $30.00 with a hold rating, and Rosenblatt raising its target to $36.00 with a buy rating, all on August 4, 2023.

Challenges and Opportunities

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DraftKings confronts an array of challenges and prospects within its online gaming industry. In the fiercely competitive and regulated industry it operates in, competition emerges from FanDuel, BetMGM, Caesars Entertainment, Penn National Gaming, and Wynn Resorts. These competitors wield resources, experience, brand presence, and customer loyalty that could overshadow DraftKings. Moreover, the prospect of new entrants or industry consolidation may elevate competitive pressures and erode market share and profitability.

DraftKings counters this landscape with distinct advantages, supporting customer base and revenue growth. The company's diverse product array spanning daily fantasy sports, sports betting, casino gaming, NFT marketplace, media content, and retail sportsbooks, caters to varying customer preferences, fostering cross-selling and upselling opportunities and boosting customer lifetime value. The proprietary technology platform underpinning DraftKings' offerings underscores scalability, security, and flexibility, enabling rapid deployment of novel features and products. Integrating data analytics and artificial intelligence further enriches product offerings, enhancing the customer experience and marketing effectiveness.

With solid brand recognition and customer loyalty, DraftKings has secured a prominent position in the U.S. online gaming landscape. A loyal customer base exceeding 4 million monthly unique payers, spending approximately $77 per month, reflects this. Benefitting from partnerships with sports leagues, teams, media entities, and celebrities, the company harnesses these alliances to amplify brand visibility and customer allegiance.

DraftKings contends with additional risks that could impact business performance and reputation. Operating within a heavily regulated industry governed by federal, state, and local laws, changes in these regulations pose potential challenges, impacting licensing, taxation, consumer protection, responsible gaming, data privacy, and security. Operational or technical disruptions could arise from issues with the proprietary technology platform or third-party service providers, potentially leading to service interruptions, quality degradation, or customer dissatisfaction.

While navigating these challenges, DraftKings remains poised for growth. The potential expansion into emerging markets where online sports betting and gaming are or will get legalized offers significant opportunities. As of August 2023, online sports betting is sanctioned in 32 states and Washington D.C., with online casino gaming legal in 11 states, indicating substantial untapped market potential as more states legalize these activities.

DraftKings also eyes product innovation as a growth catalyst. Recent initiatives such as the non-fungible token (NFT) marketplace in collaboration with Tom Brady's Autograph platform and the DK Nation social media platform underscore the company's ability to diversify its product portfolio and grow revenue streams.

Bolstered by robust revenue growth, improved profitability, a strong balance sheet, and competitive strengths, DraftKings anticipates an optimistic outlook and strategic expansion. The company intensively invests in growth pursuits encompassing marketing, technology, compliance, and acquisitions. Through these efforts, DraftKings is positioning itself for continued success in the dynamic online gaming landscape.

Why Traders Should Consider DKNG Stock

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Traders should consider DKNG stock for the following compelling reasons: DKNG gets undervalued compared to its peers and the industry. Its forward P/E ratio of -36.6x is lower than the industry average of 19.5x, suggesting potential for higher earnings growth, but also greater vulnerability to earnings fluctuations. DKNG boasts strong momentum, riding an upward trend since May 2023 due to robust revenue growth, favorable earnings surprises, and the expanding legalization of online sports betting and gaming in the U.S. Achieving an all-time high of $34.49 on August 4, 2023, the stock's volatility presents trading opportunities with its fluctuating prices. Analyst ratings and price targets further affirm the stock's appeal. As of August 8, 2023, there are 25 analysts rating DraftKings a Buy, with a consensus price target of $29.52, indicating a 7.0% upside from the current price of $31.74.

Trading Strategies for DKNG Stock

Different trading strategies are often used to trade DKNG stock, depending on the trader's objectives, risk appetite, and time horizon. Some of the common trading strategies are:

  • CFD Trading: CFD trading is a method of trading the value of an underlying asset without owning it. The trader and broker enter into a contract whereby they agree to exchange the difference between the price of the asset at the opening and closing of the trade. CFD trading has some advantages, such as:
    • Access to various markets and instruments, including stocks, forex, commodities, indices, and cryptocurrencies.
    • Ability to trade with leverage, which means using a small amount of capital to control a more prominent position and potentially magnify profits or losses.
    • Ability to go long or short, which means profiting from both rising and falling markets.
    • No ownership costs, such as commissions, stamp duty, or custody fees.
  • Trend Trading: Trend trading is a method of trading that follows the market's direction. The trader identifies the dominant trend of the asset and enters trades in the same direction until the trend reverses or loses momentum. Trend trading has some advantages, such as:
    • Simplicity and clarity, as the trader only needs to follow one indicator or rule to determine the trend.
    • Consistency and profitability, as the trader can capture large price movements and avoid whipsaws or false signals.
    • Risk management and discipline, as the trader can use stop-loss orders and trailing stops to protect their profits and limit their losses.
  • Swing Trading: Swing trading is a method of trading that exploits short-term price fluctuations in the market. The trader identifies price patterns and signals that indicate potential reversals or continuations of the trend and enters trades accordingly. Swing trading has some advantages, such as:
    • Flexibility and diversity, as the trader can trade across different markets and time frames, depending on their preferences and opportunities.
    • Balance and efficiency, as the trader can capture significant price movements without holding positions for too long or too short.
    • Adaptability and creativity, as the trader can use various technical analysis tools and indicators to identify and confirm trading signals.

Source: Alamy

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Conclusion

DKNG stock is an attractive investment opportunity for traders who want to benefit from the growing online sports betting and gaming industry in the U.S. The company has strong revenue growth, improving profitability, a solid balance sheet, competitive advantages, and a positive future outlook. However, the company also faces challenges and risks that could affect its performance or valuation. Therefore, traders should use appropriate trading strategies and risk management techniques to trade DKNG stock CFD with VSTAR.