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DraftKings Inc. (NASDAQ: DKNG) has taken a rocket ride since going public via a reverse merger with a blank check acquisition company earlier this year.
The stock has almost tripled as investors raced to cash in on the sports betting and online gambling business. Big-name investors like George Soros have been buying shares of the online gambling company, and news of their buying has further fueled the rise of the stock.
DraftKings is an online sportsbook and "fantasy" sports platform. Users in states where sports gambling is legal can place sports bets directly through the DraftKings app, while users across the country can play daily fantasy sports games for cash prizes.
Since the Supreme Court struck down a federal law prohibiting sports gambling in 2018, 17 states have allowed some form of legal sports gambling.
It's only a matter of time before the rest of the country follows suit.
That has investors salivating over the prospects of owning stock in an early mover like DraftKings - a company with national exposure and brand recognition before the rest of the walls tumble down.
But there's more to this company than an app.
Here's what you need to know about DraftKings, including whether DKNG stock is one to buy right now...
Everything You Need to Know About Draftkings
It's not just the investing world hopping on the bandwagon.
Well-known figures in the sports world have also invested heavily. The Dolan family that owns the New York Knicks has almost 1.5 million shares of DraftKings. Jerry Jones, the owner of the Dallas Cowboys, owns shares. So does the New England Patriots owner Robert Kraft.
Walt Disney acquired an ownership interest in DraftKings when it closed in the transaction with FOX last year. SEC filings show it owns more than 18 million shares of the company.
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DraftKings is not just a sportsbook operation. The company pointed out that in a recent presentation that iGaming is nearly a half-billion-dollar industry in New Jersey. If you take that and extrapolate to what they expect to be more national acceptance of online casino gambling, the eventual market will be worth as much as $21 billion. That's based on 30% of the nation allowing casino gaming. DraftKings thinks it can take a market share of between 10% and 20% of those gamblers leading to gross revenue between $600 million and $1.2 billion.
Management has also said that they expect 65% of the country to allow online sports gambling, creating an $18 billion market. Here the company expects to have a market share of 20% to 30%, producing gross revenue of $2.3 billion to $3.5 billion.
They are off to a good start. In the first quarter, revenue was up 30%. Although many sports leagues are shut down, DraftKings got innovative to keep revenue growing. It allowed customers to bet on eNASCAR, Counter Strike, and Rocket League, as well as pop culture events such as the T.V. shows "Survivor," "The Last Dance," and "Top Chef." The company said in the press release that it expects the COVID-19 pandemic to have little to no effect on its business this year or next.
There is no question that the continued spread of online sports betting and casino games is a huge opportunity. States are going to need the tax revenue to shore up battered and busted budgets. That was true before the pandemic arrived, and it is even more true today. Sports leagues will eventually reopen, and DraftKings is going to be doing a fantastic amount of business and growing rapidly.
Then we should buy the stock, right?
Here's what you need to know before you buy DraftKings stock...
Why DraftKings Stock Isn't a Slam Dunk
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.