The Real Winner This March Madness

Americans are expected to gamble away $3B at this year’s March Madness Tournament. 

And with 33 States now offering some form of legal sports betting—it should come to no surprise that traders are searching for tickers to gain exposure to this rapidly growing market.

Believe it or not, the number of Americans who bet on sports grew by 30% over the 18-month period ending in September 2021, an increase of 15.3M bettors, according to data from the National Council on Problem Gambling.  

Furthermore, the total addressable market for online sports betting and iGaming in North America is estimated to be around $67B to $80B. 

And while there are several players in the space, some old and experienced, while others are new and disruptive, there is one we believe offers an intriguing opportunity based on risk vs. reward. 

Today we’re going to take a deeper dive into DraftKings (DKNG) and why we believe it can emerge as a top-player in the space. 

While the popularity of Draftkings has waned since its heyday during the pandemic, it’s still the top casino and resort stock amongst financial pros by a mile, as well as amongst retail investors.

And as we move into March Madness, we’re seeing searches increase across the board.

So we know it’s becoming a hot topic that could start to see some momentum.

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DraftKings Business

DraftKings is a digital sports entertainment and gaming company. It is the only U.S.-based vertically integrated sports betting operator. The firm is a multi-channel provider of sports betting and gaming technologies, powering sports and gaming entertainment for operators in 17 countries. 

DKNG is among the top 3 operators in the U.S. for online sports betting, which accounts for 80% of its gross gaming revenue. 

Moreover, DKNG is in more states than any other online sports betting operator, giving itself a first-mover advantage over its competitors. 

DraftKings Financials

Last year’s fiscal year revenue grew by 110%. When you examine its growth rate over the last three years, you’ll see that its average is 78.9%.

In fact, when compared to its competitors BYD, PENN, and WYNN, you can see that DKNG is growing faster than all of them. 

Of course, DKNG must continue to grow its revenue if it wants to someday become profitable. It’s currently sporting a negative earnings to price ratio. A concern for Wall Street, as the Fed begins to raise rates and make money more expensive to borrow. 

DKNG Valuation

One concern Wall Street has with DKNG is that its stock price is 5.8X its sale—which is higher than the sector average of 4.1X. Shares are 4.5x their book value. That is a high number when compared to the sector average of 1.6. 

However, it is not always an apples to apples comparison. 

You see, DKNG also has over 6M all-time paid fantasy sports users. And has ten years of data it has collected, giving the firm a significant advantage over its competitors. 

DraftKings Marketplace announced it was getting into NFTs in March. Not its first move in Web3. Back in October it announced it was doing a blockchain agreement with the Polygon Network. 

And while traditional value investors might run away from DKNG, Wall Street sees its growth potential and thinks differently. That’s why the average analyst price target is $33.90, which offers significant upside potential from these current levels. 

DraftKings Growth

The gambling industry as a whole is expected to rise 7% per year between 2020 to 2025 globally. 

But when stacked up to its competitors, DKNG’s revenue growth is at triple digits, where its closest competitor WYNN is at 79.55%

Our Opinion 8/10

DraftKings is a leader in the online sports betting space. The firm is experiencing a significant growth spurt. 

And while it still isn’t profitable, share prices have declined 75% off their 52-week highs, which we believe creates a buying opportunity.