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DraftKings: Why This Is A Mixed Bag Investment

Apr. 12, 2021 6:36 AM ETDraftKings Inc. (DKNG)20 Comments


  • DraftKings is expected to grow its top-line by more than 55% y/y in 2021.
  • Will DraftKings be able to reduce its customer acquisition costs and still sustain its solid growth rate profile?
  • Investors are already paying more than 23x forward sales, which is a large premium for too much uncertainty.
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Online Fantasy Sports Sites, FanDuel And DraftKings, Under Scrutiny Of Government
Photo by Scott Olson/Getty Images News via Getty Images

Investment Thesis

DraftKings (NASDAQ:DKNG) was a very rewarding stock early in 2020. However, right now, its performance has been somewhat dissatisfying.

Investors will have to justify paying more than 23x forward sales until DraftKings can demonstrate it can stop burning

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The author is long FUBO.

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Comments (20)

Every sports upset has the house winning at every turn.... time to stop gambling on sports and investing in stocks....haha !

Good Luck
BalancedDietExtraProtein profile picture
Reminds me of how heavy SNAP used to spend right after they went public. Once they got their share of the market they cut the spending and EPS improved in a big way.
Martin Brenner profile picture
Such as?
Alexander Ebbinghouse profile picture
FUBO has also been burning money like crazy and its future is way more uncertain than Draftkings in my opinion... FUBO had a -231 million operating profit in 2020. It is an interesting speculative investment, but people who are knowledgeable about sports betting tend to gravitate towards DKNG and PENN. I do think the forest looks good for Draftkings, but you could be right about the trees looking in need of a trimming.
nick_the_professor profile picture
The question I have with online gambling is the same with marijuana. Both sectors are pricing in increased revenues presumably once legalization is enacted. The issue is that the services or products are not proprietary.

Granted they are both different however more competitors would be expected to come into the market once it opens. The gambling sectors is less developed as most are in person casinos so there is an appeal to online esp over mobile however I just don't see where the moat is long term. I do see this as a growth area in mobile specifically but as money flows in the area, other online platforms presumably will be built in direct competition.
@nick_the_professor There is no moat. It is going to be a low profit margin business. The valuations of these companies have already exceeded any reasonable valuation one can project for the future earnings potential.
It's at least a 2 year hold for me but they're definitely making all the right moves, IMO.
Legacy Legends, LLC profile picture
DKNG has the first mover advantage and is backed by many credible investors who usually don't short the S&P 500. DKNG will hit 3 digits soon!
Legacy Legends, LLC profile picture
"In sum, there are better stock picks elsewhere."

Like what?
bobsar profile picture
@Legacy Legends, LLC Fubo according to him. I was in DKNG at $10.50 before SPAC converted. I sold off at $60 for all the reasons he stated. I would go in again if there's a sell off. I also was in Fubo and still have some but I'm more likely to add to it. There really is a LOT of competition and I don't expect anybody to really dominate. DKNG is the big target. BUT the pie is expanding (slowly) so there's that.
Puche profile picture
I very much enjoyed the article and your high level view on DKNG and it’s valuation. Well done!

No doubt DKNG’s valuation is extended and there is significant risk in owning the stock. Most high growth sector leaders tend to push valuation and have significant risk. Think NFLX, AMZN, GOOG, MSFT and FB during its early years of being a public company. Think the leading cannabis stocks today.

IMO long term astute investors that have a high risk tolerance and understand that the nationalized legalized sports betting and on-line gambling is only getting started. IMO it is too early to jump off the ship. Yes, volatility will remain high and movements up and down of 30%+ will occur but over a long period of time I think DKNG will deliver solid return (not as strong as the last couple of years).

Of course this is just my two cents. Slow and steady! Good luck to all!
@Puche too much logic for the writer.
Puche profile picture
@mmacius you made me laugh!

Good luck to you!
@mmacius Comparing DKNG's potential (with it's 5 million users) with NFLX, AMZN, GOOG, MSFT, and FB with their 100's of million of users, is pretty much as far from logical as one can get. In comparison to ridiculous statements like that, the writer of the article is a genius. DKNG is going to be a nice on line gambling company that makes $2.50 a share or so at maturity in a decade. It has a 1 in 10,000 chance of being like one of those companies mentioned.
ok i get it now all of us that bought draft kings early and are up 2-300% now and that was when sports was just about not being played should pay you to pick our investments instead. but your a professional.i forgot. i think i'll stay a rookie. up 300% is not what a professional would make for me but if i keep at it maybe i will become one to.
It will keep appreciating since cathie bought it
DKNG I see being a $100+ stock this year myself...more and more states going to adapt online gambling and sports betting, I look at them as how Amazon was in the beginning, keep grabbing more and more and more market share,that's the name of the game which will equal $$ hand over fist ahead imo
Daytrader77 profile picture
Simple mathematics:

Revenue of $614M and net loss has increase to $845M..

It would take more than just optimistism to ever be investable even at $20.
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