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DraftKings: Monstrous Revenue-Generating Potential

Oct. 06, 2021 8:27 AM ETDraftKings Inc. (DKNG)19 Comments


  • The online gambling market is set to grow rapidly over the next decade or so. Given its substantial market share, DraftKings is well-positioned for long-term success.
  • DraftKings is seemingly expensive relative to other casino and gaming stocks.  Whether you want to argue the company is deserving of a higher valuation is up to you.
  • The stock is down ~22% over the last six months, and with expectations for increased market turbulence moving forward, investors could take advantage of a low buy-in price.
  • By virtue of our long-term investing approach, we believe DraftKings is a well-built company with an enormous runway for growth.

Two happy excited fan friends in euphoria mood after winning in a bet with a smartphone in hand on stadion background
Povozniuk/iStock via Getty Images

This article was updated on 10/12/2021 to reflect an updated valuation.

Investment Thesis

DraftKings (NASDAQ: NASDAQ:DKNG) is a leading online sports betting and casino operator in the United States. In recent years, the industry has experienced wider mainstream

This article was written by

I seek out disruptive companies that are status quo killers.  I tend to gravitate toward the technology and consumer goods sectors, although I like to view myself as industry agnostic.  In spite of analyzing many different components of a company, the stocks I like to invest in have four common characteristics: superior management, strong fundamentals, attractive valuation, and a newsy catalyst. I look forward to interacting with the Seeking Alpha community.  Cheers!

Analyst’s Disclosure: I/we have a beneficial long position in the shares of DKNG either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (19)

Money&Money,LLC profile picture
It appears that DKNG is following the early AMZN playbook. Just keep pumping money into the build up, dont worry about profits. Eventually the profits will come as you become the dominant player.
charly333 profile picture
Just found out my calculation of the market cap was wrong. The B-Shares have no economic rights, so the market cap of the outstanding shares is "only" $ 19.3 billion.
Per john Keynes, the biggest casino is the stock market, i tend to concur on this from time to time. so,of course to have osb is only an extension of the fear and greed aspects of gambling/ investing/speculation. sheer madness.
charly333 profile picture
Just looked again at this stock. It's on my watchlist for shorts. Market cap $ 38.15 billion (SA is missing the B-Shares), that means a P/S for 2021 of about 29.8 with TTM losses bigger than sales. This is madness. Gamblers in the stock market buying gambling stocks, it seems.
I own dkng but I own more PENN as they are at least profitable. I’ll take a 10% share in the industry during 2021 while profitable and no big spending on customer acquisition vs waiting for another 3-5 years but I can be wrong which I why again I own many.
Rsi and gan are also interesting.

Good luck to us all.
kthor profile picture
Several things will happen with DKNG, BetMGM and Entain

1. MGM will buy out the BetMGM USA from Entain/DKNG, probably at MGM advantage
2. MGM will take a position in DKNG after Entain
3. MGM sell betMGM
4. DKNG just drops the bid for entain

2&3 seems unlikely, see what happens
Turk Malloy profile picture
I want to believe this stock with triple in 5 years. I have used all the major sports apps and believe DraftKings is the best. Right now they seem the have correct partnerships (e.g. NFL). They just had a great story about them on CNBC and all the technology and where they want to go (although the story was about gamification of betting and stock purchases - a negative). But I am concerned it will take another 4 years to be profitable and then at that point the sales growth will have diminished to the point people will be looking at the old school p/e metric to determine value.

Maybe they are sandbagging when they will be profitable so it can surprise analysts.
Loft Capital Management profile picture
@Turk Malloy Thank you for your comment. It will be interesting to see how investors react to decelerating growth as the company remains unprofitable (until 2024 at the earliest according to most).
@Loft Capital Management with recent events do you still feel strongly about your 131 price projection?
You estimate the stock trading at 15 times sales in 2021 with a 100% revenue growth, and continue to show it selling at 15 times sales in 2025 when revenue growth has fallen to 22%. In reality, if the revenue growth falls to 22% and is in a declining trend then there is almost no chance the stock will be trading at 15 times sales at the time, especially with no or low profits. It is much more like to be selling at around 4 or 5 times sales as the revenue growth rate decelerates into a more mature company. At some point revenues are going to became almost irrelevant and profit potential all important when valuing the stock. The $163 base case price in 2025 is probably about three times too high for the revenues projected in the model above because of the unrealistic 15 times sales multiple tacked on to what will likely be a maturing company. A $50 stock price in 2025 is much more likely.
WolfpackCapital profile picture
This is a fantastic article. Thank you Author! Finally an article that’s great
They will make a killing with their NFT
Turk Malloy profile picture
@dinvestf This was an area they brought up in CNBC story last night - certainly a potential big deal.
I own them all but for this article not to lay out the expenses/financials is just plain irresponsible. Pumper article.
If the case was so bullish why do they need to buy Entain's cashflow?
Market Mason profile picture
@Bowler162 To diversify geographically? To buy their tech stack? To undermine one of their competitors (MGM)? Could be a lot of different reasons.
cdgingrich profile picture
@Bowler162 I try to only invest in companies that are the leaders and intend to stay the leaders. That is how I see DKNG-GNOG-Entain.
tenbaggerZ!! profile picture
But a money losing machine with pathetic profit profile that’s monstrously over valued
WolfpackCapital profile picture
“Money losing machine…..”
Evidently you’ve never heard of… TSLA, AMZN, NFLX, SNAP, SHOP etc etc. every monster stock begins as a “money losing machine.” The war is for market share. Profits come LATER.
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