We recently compiled a list of the 11 Best Las Vegas Stocks To Buy Now. In this article, we are going to take a look at where DraftKings Inc. (NYSE:DKNG) stands among the best Las Vegas stocks to buy now.
The gambling industry is growing throughout the globe, with the United States being one of the fastest-growing markets. According to the American Gaming Association, more American adults participated in some kind of gambling entertainment activities than ever during the past 12 months. The survey found that more than 55% of American adults participated in gambling, with 28% going to a physical casino while 21% placed sports bets.
One of the key findings of the report was regarding gambling becoming more acceptable within the American population. As per the association, 9 out of 10 adults found casino gambling acceptable for themselves and others as well. This is good news for the US economy and casino companies as they will generate substantial revenues from increased acceptability of gambling. The United States commercial gaming revenue increased 8.9% year-over-year to reach $17.63 billion during the quarter. Q2 2024, marked 14th consecutive quarter of growth and was driven by casino expansion in various states of the country, including Illinois, Virginia, and Nebraska.
Sports betting is one of the major contributors to the overall gambling industry. Let’s take a look at some of the recent trends in the sports betting industry.
What’s Happening in the Sports Betting Industry
It’s hard to think about sports without sports betting or gambling. The sports betting and gambling industry in the United States has exploded in the past 6 years since it became legalized in most states across the United States. Currently, 38 states have legalized gambling and the industry generated more than $120 billion in total bets and $11 billion in revenues for 2023 alone.
In one of the recent episodes of CNBC Boardroom’s Game Plan Sports Event, the executives of FanDuel, Fanatics, and Sportradar discussed the new state taxes and betting industry trends. All the executive members on the panel found that betters are more interested in placing wagers on individual players, along with placing real-time bets during the live sports event.
Moreover, the CEO of FanDuel overturned his decision to charge a gaming supertax from its customers after his competitors decided against charging any such tax. This came in a reaction after two US lawmakers introduced a bill to address sports betting at the federal level. In one of our recent articles on 10 Best Casino Stocks To Buy According to Analysts, we discussed how the upcoming taxes are expected to affect the market. Here’s an excerpt from the piece:
Illinois lawmakers are drafting a new budget that includes a sharp increase to the state tax on sports betting operators. On May 28, CNBC’s reporter Contessa Brewer mentioned that operators in Illinois have paid 15% on sports betting since it went live in June 2021. The new tax proposal is expected to increase the tax to a range of 20% to 40% depending on gross receipts, which means that the largest betting operators are expected to be attacked the highest with this increase.
The law is yet to be passed, but if it gets approved it will make Illinois’ highest tax rate the second highest behind New York and New Hampshire. For context, Illinois is the 4th largest state for sports betting and betters wagered more than $1.2 billion in March 2024 alone. Sports betting associations are not happy with the tax proposal. The CEO of one of the largest sports betting operators in the United States mentioned that the burden of this tax is going to shift to the consumers.
There is an upcoming tailwind which is expected to boost the industry further. The football season is back and the NFL is expected to spur a record $35 billion in legal sports betting. On September 3, CNBC reported that the United States will wage $35 billion this NFL season, marking a 30% increase since last year’s National Football League.
Much has changed since the last season. During the year states including Maine, North Carolina, and Vermont have allowed sports betting operations in their jurisdictions. Amidst the upcoming season, sports betting companies are feeling the heated competition and platforms are coming up with new strategies to capture more customers.
The president of FanDuel mentioned that the NFL season is one of the biggest acquisition periods of the year. The platform has partnered with YouTube and rolled out a “Sunday Ticket” offer, where players who bet at least $5 get a 3-week trial period to watch the NFL matches with Sunday Ticket. Moreover, as more than 95% of sports betting is happening online it presents an exciting opportunity for sports betting leaders to enhance their customer base and generate more revenues.
Our Methodology
To compile the list of 11 best Las Vegas Stocks to buy now we used the Finviz screener and ETFs. Using these two sources we first curated a list of 20 casino, gambling, and gaming stocks. Once we had the list, we then ranked these stocks based on the number of hedge funds holders during the second quarter. The list is ranked in ascending order of the number of hedge funds.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Photo by DraftKings Inc. (NYSE:DKNG)
Number of Hedge Fund Holders: 56
DraftKings Inc. (NASDAQ:DKNG) is the best Las Vegas stock to buy now. The stock was held by 56 hedge funds in the second quarter with total stakes worth $2.25 billion. Marshall Wace LLP is the top shareholder, with a position worth $359.20 million The company functions in the digital sports betting and casino industry. It has a wide portfolio of online sports betting games that are commonly used across the United States and Canada.
Its major segments include online sports betting and iGaming. DraftKings Inc.’s (NASDAQ:DKNG) sportsbook is live in more than 27 states in Canada. Moreover, its Daily Fantasy league, an online platform, is now available in more than 44 provinces giving the company significant market reach.
With the recent news of increased tax rates on sports betting the company faced some headwinds and a pressurizing regulatory environment. However, regardless of the pressure, it was still able to increase its customer acquisition by 80% year-over-year.
While the customer acquisition growth rate is impressive, what counts is the customer acquisition cost. Management was able to reduce the cost of acquiring new customers by more than 40% during the most recent quarter.
A growing customer base means skyrocketing revenues. DraftKings Inc. (NASDAQ:DKNG) grew its revenue by 26% year-over-year and has also raised its full-year guidance indicating a 41% increase year-over-year.
To cope with the tax rate hike, management has decided not to take a toll on itself and will be rolling out increased gaming tax for its customers in 4 states next year. Lastly, in terms of earnings and profitability, DraftKings Inc. (NASDAQ:DKNG) has plans to bring its adjusted EBITDA between $900 million to $1 billion by next year.
Alger Spectra Fund stated the following regarding DraftKings Inc. (NASDAQ:DKNG) in its Q2 2024 investor letter:
“DraftKings Inc. (NASDAQ:DKNG) is a digital sports entertainment and gaming firm designed to ignite the passion of sports enthusiasts through a diverse offering that spans daily fantasy, regulated gaming, and digital media. We believe the company’s expertise in product development and customer acquisition, which established it as the market leader in daily fantasy sports (DFS), positions DraftKings to be a key driver in advancing the U.S. sports betting market’s growth. The company reported strong fiscal first quarter results, with revenues beating analyst estimates due to broad-based momentum in customer engagement and acquisition. However, on May 28th, the Illinois Senate passed a new state budget that includes a tiered progressive tax on sportsbook operators, effective July 1, 2024. This new tax ranges from 20% to 40% on gross revenues, a significant increase from the current 15% tax rate. Despite management’s belief that it can mitigate the tax impact by reducing promotions in Illinois, this development negatively affected the company’s share price.”
Overall DKNG ranks 1st on our list of the best Las Vegas stocks to buy now. While we acknowledge the potential of DKNG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article was originally published on Insider Monkey.