Analyzing DraftKings stock’s growth potential and major risks
When we last checked in on DraftKings Inc. (NASDAQ: DKNG) sports betting trailblazer gaming company was reeling from a scathing short seller note. Now, a little more than a month later, it was worth checking in on DKNG to gauge the fallout from that bear gap.
At last check, DraftKings stock was down 2.6% to trade at $47.93. Despite a 36.8% 12-month lead, DKNG has battled its year-to-date breakeven level the last two months. Since a March 22 record high of $74.38, the shares have carved out a channel of lower highs, with multiple descending trendlines emerging as resistance.
A short squeeze could help DKNG reclaim some of these recent losses. Short interest fell nearly 12% in the two most recent reporting periods, yet the 30.24 million shares sold short accounts for 9% of the stock's total available float.
DraftKing's products range across daily fantasy, regulated gaming, and digital media. They provide sports betting and gaming technologies, with a live sportsbook offering mobile and retail betting operations in Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Tennessee, Virginia, and West Virginia. DraftKings is also the official daily fantasy partner of the NFL, MLB, NASCAR, PGA TOUR and UFC, as well as an authorized gaming operator of the NBA and MLB, an official betting operator of the PGA TOUR, and the official betting operator of UFC.
On July 21, DraftKings revealed plans to launch DraftKings Marketplace, a digital collectibles ecosystem designed for mainstream accessibility that offers curated NFT drops and supports secondary-market transactions. The platform will allow millions of customers to buy, sell, and trade digital collectibles across sports, entertainment, and culture using their existing DraftKings account. DraftKings Marketplace will also be the exclusive distributor of NFT content from NFT platform, Autograph, which leverages official licensing of prominent athletes and celebrities to provide a wide array of digital collectibles.
DraftKings is slated to square up at the earnings plate for its second-quarter earnings on August 6. In recent history, DKNG has not fared well on the earnings front. In fact, DraftKings missed expectations on all four of its most recent earnings reports. However, two of those post-earnings reactions were to the upside; a 6.4% pop in February and a 3.9% rise in November.
The growth potential is massive for DraftKings. The company is already expanding at a rapid rate, with revenues up approximately 340% since fiscal 2017. However, the digital sports entertainment company is still far away from profitability, with trailing 12-month net income coming in at a jaw-dropping -$1.12 billion. Fortunately DraftKings carries a decent balance sheet with $2.82 billion in cash, giving the business the resources to continues expanding its brand and business in the coming years. Inversely, the company’s total debt comes in at $1.33 billion.
Perhaps the biggest threat for DraftKings lies in the limitations posed by laws and regulations which makes DKNG's business model much riskier than most. The law does, however, seem to be recently shifting in the company’s favor, at least in the United States. As we've discussed in this space repeatedly, the more states that adopt live sportsbook, the more tailwinds could emerge for DKNG. Put more simply, if you believe legalized sports betting is a paradigm shift in waiting , then you want to keep an eye on DraftKings.