$DKNG A Winning Bet
Building up momentum since the start of the year, DraftKings Inc. (NASDAQ: DKNG) is currently up more than 140% YTD. With the company expected to release its Q2 earnings on August 4, DKNG stock could be poised for a post earnings run given that it ran 30, 40, and 32% following its last 3 earnings. This might be the case following Q2 earnings thanks to the success of the last NBA Playoffs since it could have led to an increase in placed bets. For this reason, going long on the stock ahead of its upcoming earnings could prove to be a profitable investment considering the company’s potential to beat estimates once again this year.
DKNG Fundamentals
Sports Betting and IGaming
Sports betting and online gambling are the foundations of DKNG’s business and both have been gaining momentum around the US lately. Multiple states are currently trying to pass bills to either legalize sports betting or expand existing gambling legalizations to include online gambling.
Currently, online sports betting is legal and live in 24 states in the US, with DKNG operating in 21 of them, with these 21 states containing more than 42% of the US population. In the case of new states legalizing either sports betting or online gambling, DKNG can leverage its population acquisition rate and gain a huge amount of new customers as it has a 3.4% average adult population acquisition rate 30 days after launch according to its latest Q1 presentation.
Earlier this year, Texas, Minnesota, and Missouri introduced their own bills to legalize sports betting; unfortunately for DKNG, the bill did not pass in any of those states, although the bill came close to passing in Missouri with The House overwhelmingly passing the bill.
That said, North Carolina signed a bill earlier this year to legalize online sports betting, with the expectation that it will launch in the first half of the year. As of 2023, North Carolina has 8 million adults, which means that according to DKNG’s population acquisition 30 days after launch, it could acquire approximately 272 thousand new customers.
On the online gambling front, DKNG is currently operating in five US states and in Ontario, Canada. DKNG was in danger of losing New Jersey since Legal authorization for online casino gambling in New Jersey was set to expire in November of this year. However, Gov. Phil Murphy signed iGaming extension legislation into law on June 30, giving online gambling in the state another five-year term, which means that DKNG can be at ease for another five years before thinking about stopping online gambling operations in New Jersey.
Q2 Outlook
DKNG is expected to release its Q2 earnings on August 4 in which it expects to break even on an adjusted EBITDA basis and to achieve $150 million of positive adjusted EBITDA in Q4 according to its Q1 earnings call. Furthermore, DKNG raised its guidance for the full-year adjusted EBITDA by 21% at the midpoint from negative $400 million to negative $315 million, which is mainly driven by the better-than-expected customer acquisition and retention rate.
The recent NBA playoffs can help DKNG reach its breakeven target since it was the most watched NBA playoffs in five years with an average of 5.47 million viewers, up more than 50% from last year’s average of 3.6 million viewers.
With that in mind, there is a correlation between viewership and sports betting. According to data from the Harris Poll, sports betting has a role in increasing viewership as 86% of sports bettors watch a sports game or event at least once a week. This data is supported by the rise in NFL viewership since the expansion of legal sports betting.
Since the Supreme Court struck down the Federal ban on sports betting in 2018, NFL ratings have risen every year, other than the 2020-21 season which was impacted by the pandemic, and this past season where viewership declined slightly from 17.9 million per game to 16.7 million per game. Despite this, last season’s viewership was significantly higher than before the 2017-2018 season right prior to the Supreme Court’s decision where the average viewership per game was 14.9 million.
This shows that with the growing movement to legalize sports betting, sports viewership could also increase in turn. In this way, it could be safe to assume that an increase in sports betting activity during the last NBA Playoffs could be the result of increasing sports betting activity on the event.
According to its Q1 investor presentation, DKNG improved its revenue per user by 37% YoY from $67 in Q1 2023 due to structural improvement in its sportsbook hold rates as a result of the introduction of in-house same game parlay capabilities in addition to reduced promotional intensity. The same presentation also shows that the company increased its average monthly unique users in Q1 from 2 million to 2.8 million. According to management, this increase in monthly unique players is the result of more people reaching the legal gambling age and people moving into states with legal sports betting.
In that way, DKNG stock could maintain its momentum in the second half of the year with the NFL season set to start in September. The significance of the NFL season’s start cannot be overstated since it is the most popular sport to bet on.
According to data collected in October 2022 by CRG Global, 72% of NFL fans bet weekly. In comparison, 50% of NBA fans bet weekly and this figure further declines to 39% of MLB fans. Based on this, the return of the NFL season could see DKNG achieve significantly better revenues in the second half of the year.
Risks
Despite DKNG’s bullish outlook for the rest of the year, there is a major risk that is severely impacting its profitability prospects which is its high sales and marketing costs. Although the company reduced its sales and marketing costs as a percentage of revenue from 77% in Q1 2022 to 50.5% in Q1 2023, it remains extremely high. With sports betting set to launch in Kentucky, North Carolina, and Vermont either later this year or early next year, the company might have to increase its marketing costs to attract users in these states. In that way, the company’s net losses could increase when sports betting launches in these states despite the potential revenue growth from them.
DKNG Financials
In its Q1 2023 report, DKNG’s assets decreased 7% QoQ from $4 billion to $3.7 billion due to its cash balance declining from $1.3 billion to $1 billion. As for liabilities, DKNG reported a slight increase from $2.71 billion to $2.72 billion where $1.2 billion are current liabilities. In this way, the company has a current ratio of 1.46 indicating that it is in a strong financial position.
In terms of revenues, DKNG reported an 85% YoY increase to $769.6 million from $417.2 million which is due to the company entering new markets and offering more products. Operating costs also increased 3% over the same period from $619.4 million to $637.6 million mainly due to the increase in sales and marketing costs from $321.4 million to $389.1 million. Despite the increase in costs, the company’s impressive revenue growth led to its net loss improving 15% YoY to $397.1 million compared to $467.6 million.
Technical Analysis
DKNG stock’s trend is bullish with the stock trading in an upward channel. Looking at the indicators, the stock is trading above the 200, 50, and 21 MAs which is a bullish indication. Meanwhile, the RSI is neutral at 52 and the MACD is approaching a bullish crossover.
As for the fundamentals, DKNG’s upcoming Q2 earnings report on August 4 is a major catalyst for the stock as it ran 30, 40, and 32% following its previous 3 earnings releases. Given the success of the recent NBA Playoffs, it would not be a surprise to see DKNG beat analyst estimates and run in a similar fashion to its previous earnings reports.
With the stock testing its 21 MA support, investors could find the current PPS a good entry point to go long ahead of the company’s Q2 earnings. With this in mind, if DKNG is able to break through its upper trendline, it can continue running to its next resistance at $41.4 – which would be a 30% upside from current levels.
DKNG Forecast
DKNG stock has been gaining momentum since the start of 2023, and it can keep this momentum if it announces positive Q2 earnings. Furthermore, the nationwide push for legalizing sports betting and online gambling can help DKNG enter more markets and realize more customers as more states legalize sports betting which is the foundation of DKNG’s business. For these reasons, DKNG stock is one to keep an eye on at the moment.
DKNG Fundamentals
Sports Betting and IGaming
Sports betting and online gambling are the foundations of DKNG’s business and both have been gaining momentum around the US lately. Multiple states are currently trying to pass bills to either legalize sports betting or expand existing gambling legalizations to include online gambling.
Currently, online sports betting is legal and live in 24 states in the US, with DKNG operating in 21 of them, with these 21 states containing more than 42% of the US population. In the case of new states legalizing either sports betting or online gambling, DKNG can leverage its population acquisition rate and gain a huge amount of new customers as it has a 3.4% average adult population acquisition rate 30 days after launch according to its latest Q1 presentation.
Earlier this year, Texas, Minnesota, and Missouri introduced their own bills to legalize sports betting; unfortunately for DKNG, the bill did not pass in any of those states, although the bill came close to passing in Missouri with The House overwhelmingly passing the bill.
That said, North Carolina signed a bill earlier this year to legalize online sports betting, with the expectation that it will launch in the first half of the year. As of 2023, North Carolina has 8 million adults, which means that according to DKNG’s population acquisition 30 days after launch, it could acquire approximately 272 thousand new customers.
On the online gambling front, DKNG is currently operating in five US states and in Ontario, Canada. DKNG was in danger of losing New Jersey since Legal authorization for online casino gambling in New Jersey was set to expire in November of this year. However, Gov. Phil Murphy signed iGaming extension legislation into law on June 30, giving online gambling in the state another five-year term, which means that DKNG can be at ease for another five years before thinking about stopping online gambling operations in New Jersey.
Q2 Outlook
DKNG is expected to release its Q2 earnings on August 4 in which it expects to break even on an adjusted EBITDA basis and to achieve $150 million of positive adjusted EBITDA in Q4 according to its Q1 earnings call. Furthermore, DKNG raised its guidance for the full-year adjusted EBITDA by 21% at the midpoint from negative $400 million to negative $315 million, which is mainly driven by the better-than-expected customer acquisition and retention rate.
The recent NBA playoffs can help DKNG reach its breakeven target since it was the most watched NBA playoffs in five years with an average of 5.47 million viewers, up more than 50% from last year’s average of 3.6 million viewers.
With that in mind, there is a correlation between viewership and sports betting. According to data from the Harris Poll, sports betting has a role in increasing viewership as 86% of sports bettors watch a sports game or event at least once a week. This data is supported by the rise in NFL viewership since the expansion of legal sports betting.
Since the Supreme Court struck down the Federal ban on sports betting in 2018, NFL ratings have risen every year, other than the 2020-21 season which was impacted by the pandemic, and this past season where viewership declined slightly from 17.9 million per game to 16.7 million per game. Despite this, last season’s viewership was significantly higher than before the 2017-2018 season right prior to the Supreme Court’s decision where the average viewership per game was 14.9 million.
This shows that with the growing movement to legalize sports betting, sports viewership could also increase in turn. In this way, it could be safe to assume that an increase in sports betting activity during the last NBA Playoffs could be the result of increasing sports betting activity on the event.
According to its Q1 investor presentation, DKNG improved its revenue per user by 37% YoY from $67 in Q1 2023 due to structural improvement in its sportsbook hold rates as a result of the introduction of in-house same game parlay capabilities in addition to reduced promotional intensity. The same presentation also shows that the company increased its average monthly unique users in Q1 from 2 million to 2.8 million. According to management, this increase in monthly unique players is the result of more people reaching the legal gambling age and people moving into states with legal sports betting.
In that way, DKNG stock could maintain its momentum in the second half of the year with the NFL season set to start in September. The significance of the NFL season’s start cannot be overstated since it is the most popular sport to bet on.
According to data collected in October 2022 by CRG Global, 72% of NFL fans bet weekly. In comparison, 50% of NBA fans bet weekly and this figure further declines to 39% of MLB fans. Based on this, the return of the NFL season could see DKNG achieve significantly better revenues in the second half of the year.
Risks
Despite DKNG’s bullish outlook for the rest of the year, there is a major risk that is severely impacting its profitability prospects which is its high sales and marketing costs. Although the company reduced its sales and marketing costs as a percentage of revenue from 77% in Q1 2022 to 50.5% in Q1 2023, it remains extremely high. With sports betting set to launch in Kentucky, North Carolina, and Vermont either later this year or early next year, the company might have to increase its marketing costs to attract users in these states. In that way, the company’s net losses could increase when sports betting launches in these states despite the potential revenue growth from them.
DKNG Financials
In its Q1 2023 report, DKNG’s assets decreased 7% QoQ from $4 billion to $3.7 billion due to its cash balance declining from $1.3 billion to $1 billion. As for liabilities, DKNG reported a slight increase from $2.71 billion to $2.72 billion where $1.2 billion are current liabilities. In this way, the company has a current ratio of 1.46 indicating that it is in a strong financial position.
In terms of revenues, DKNG reported an 85% YoY increase to $769.6 million from $417.2 million which is due to the company entering new markets and offering more products. Operating costs also increased 3% over the same period from $619.4 million to $637.6 million mainly due to the increase in sales and marketing costs from $321.4 million to $389.1 million. Despite the increase in costs, the company’s impressive revenue growth led to its net loss improving 15% YoY to $397.1 million compared to $467.6 million.
Technical Analysis
DKNG stock’s trend is bullish with the stock trading in an upward channel. Looking at the indicators, the stock is trading above the 200, 50, and 21 MAs which is a bullish indication. Meanwhile, the RSI is neutral at 52 and the MACD is approaching a bullish crossover.
As for the fundamentals, DKNG’s upcoming Q2 earnings report on August 4 is a major catalyst for the stock as it ran 30, 40, and 32% following its previous 3 earnings releases. Given the success of the recent NBA Playoffs, it would not be a surprise to see DKNG beat analyst estimates and run in a similar fashion to its previous earnings reports.
With the stock testing its 21 MA support, investors could find the current PPS a good entry point to go long ahead of the company’s Q2 earnings. With this in mind, if DKNG is able to break through its upper trendline, it can continue running to its next resistance at $41.4 – which would be a 30% upside from current levels.
DKNG Forecast
DKNG stock has been gaining momentum since the start of 2023, and it can keep this momentum if it announces positive Q2 earnings. Furthermore, the nationwide push for legalizing sports betting and online gambling can help DKNG enter more markets and realize more customers as more states legalize sports betting which is the foundation of DKNG’s business. For these reasons, DKNG stock is one to keep an eye on at the moment.
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