DraftKings (NASDAQ:DKNG) is a popular U.S.-based online sports betting platform. With sports betting being legalized in various states, DraftKings has become a household name in the U.S., and a frontrunner in the online betting industry.
The betting platform has seen substantial player engagement in the past year during the pandemic. This has made DraftKings an actively traded growth stock in recent times.
The company posted impressive second-quarter results on August 6, which has provided some much-needed momentum to the company. I am neutral on the stock.
As of now, DraftKings' share price stands at $61.02, while trading at 18% off highs. This implies that investors looking to buy into a growth story can consider this amazing stock. (See DKNG stock charts on TipRanks)
Needless to say, betting on betting itself comes with significant risk. So, one might wonder how safe it is to invest in online betting. Let’s take a look.
DraftKings' Revenue, Fan Base Rising
DraftKings has been gaining popularity as betting legalization takes place across the U.S. The online betting platform saw a 280.7% year-over-year rise in its monthly unique payers, to 1.1 million during Q2 2021.
In addition, the average revenue for each user has shot up 27% year-over-year, to $80. Revenue increased to $297.6 million, a 297% year-over-year increase.
Accordingly, DraftKings has raised its annual guidance to $1.21 to $1.29 billion in revenue.
Tough Competition Ahead
Interestingly, DraftKings has a revenue growth projection of 92% in 2021. However, DraftKings faces stiff competition that can potentially threaten its growth. FanDuel, a unit of Flutter Entertainment (FLTR), is another fantasy sports operator, and currently holds a market share of 50%.
As well, Penn National’s (PENN) Barstool Sportsbook has the potential to become a significant competitor to DraftKings in the coming days.
Moreover, land-based casinos might also prove to be detrimental for the prospect of DraftKings. Caesars International (NASDAQ:CZR) is also planning to invest in its own sportsbook platform.
Valuation, Profitability Concerns
The sportsbook sector is still in its early stages. DraftKings has decided to shift its focus to future expansion instead of profitability.
Analyst predictions indicate the possibility of losses during 2022 and 2023. The company might continue to stay in such a phase until the middle of the decade. Moreover, DraftKings might not be able to sustain its present valuation, due to increasing interest rates. The company already experienced a stock pullback in May, owing to interest-rate scares and rising inflation.
Pros, Cons Balance Out
Concerns about competition and valuation are genuine. However, there are some positive aspects that will help the company enjoy a robust position for the foreseeable future. It will manage to maintain its current market share.
Moreover, the popularity of online sports betting in the U.S. will contribute to better growth prospects for DKNG. The latest quarterly report shows that the company’s financials are in good shape.
Wall Street's Take
As per TipRanks' analyst rating consensus, DKNG stock is a Moderate Buy. Out of 13 ratings, there are nine Buys and four Holds.
The average DKNG price target is $70.17. The stock price targets lie between a low of $51, to a high of $105.
Bottom Line
DraftKings has recently announced its entry into NFTs (non-fungible tokens).
Indeed, the company has strong fundamentals, and impressive growth prospects. DKNG is a highly promising long-term player in the online sports betting industry.
Thus, investing in DKNG might not be as risky as it seems.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article
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