This article is written exclusively for Investing.com
DraftKings: a volatile stock
Company has franchise in fantasy sports
Sports betting is a growing business
Markets were excited about Golden Nugget's online acquisition
The profit was disappointing, but that can change
Betting on sports is nothing new. In the US, while Las Vegas and Atlantic City had a hold on betting for decades, more and more states are legalizing gambling in search of new revenue streams.
Meanwhile, technology has changed the way all businesses operate. Retail companies have faced the challenges of online shopping for years, and the global pandemic has only accelerated the expansion of the use of technology to facilitate the purchase of consumer goods and services. For example, technology-based companies like Uber (NYSE:) and Lyft (NASDAQ:) are replacing traditional taxis and offering many more perks, cashless payments and other benefits.
In the world of gaming, DraftKings (NASDAQ:) is emerging as the leading site for online sports betting and gambling. DKNG offers its customers betting from the comfort of their homes in states where gambling is legal. A recent acquisition added casino games to the range.
In addition, DKNG has a franchise in a sector of the gambling market with which few others can compete. At a price of $53.32 a share on Aug. 23, DKNG could trade at a price that missed investors look back at many like those who didn't buy Tesla (NASDAQ:) at a tenth of its current price in 2019 or Apple (NASDAQ 🙂 at $10 a share in 2010. Optimistic.
Source: bar chart
As the chart above shows, DKNG traded from a low of $9.76 in early August 2019 to a high of $74.38 in late March 2022. At the $53 level, the price trend continues higher as DKNG has a series of higher has reached lows over the past two years.
Company has fantasy sports franchise
There are choices when it comes to online gambling stocks, but DraftKings is an exception. It is the company that has a lock on the fantasy sports sector.
In fantasy sports, competitors create a player list to represent a virtual team. The competition ends with a winner based on the best statistics, making the participants virtual owners.
DKNG offers fantasy sports products and a wide range of sports and other games. The company's profile states:
Source: bar chart
At approximately $53 per share, DKNG has a market cap of just under $21 billion. On average, more than 11.3 million DKNG shares change hands every day.
Sports gambling a growing business
Sports gambling has always been popular. When it was illegal, people flocked to the bookmakers. Las Vegas and Atlantic City became havens for those seeking action with their favorite teams or athletes. As states look for new sources of income, gambling has become mainstream.
Meanwhile, online gaming is bringing action into people's living rooms. Technology has brought the potential of risking money for sports results to those sitting at home and watching games. Many sites, including DraftKings, offer in-game betting so that gamblers can bet on the next pitch, at bat, series of downs, quarter, period, or a range of other possibilities.
Technology is only improving the addressable gaming market, and DraftKings is a leader. Penn National Gaming (NASDAQ:) is another gaming company, but its market cap is half the size of DKNG.
More and more states are legalizing online gambling, expanding the DKNG market. This link lists the current states where gamblers can use DraftKings services, as well as the states that have yet to legalize gaming or allow DKNG to offer their services to gamblers. This list is growing.
Markets were excited about the online acquisition of Golden Nugget
On August 9, DKNG agreed to acquire Golden Nugget Online Gaming (NASDAQ:) gaming for $ 1.56 billion in stock.
The deal brought five million customers into the DraftKings ecosystem, boosting iGaming business. Tilman Fertitta, owner of Landry's Inc., a Houston-based restaurant, hospitality, entertainment and gaming company with operations in 35 US states, also owns 47% of Golden Nugget Online stock. Fertitta, who also owns the Houston Rockets basketball franchise, will join DKNG's board of directors.
DKNG expects $300 million in cost savings from the deal. The market agreed: The acquirer's shares remained above the $50 level after the deal was announced. Many acquisitions dilute shareholder value, but the consensus is that the deal is beneficial for DKNG as it will cut costs and increase the company's addressable market and product portfolio. could change
Source: Yahoo (NASDAQ:) Finance
The chart shows the less than great profit record for DKNG.
Chart: Investing.com
Meanwhile, an Investing.com survey of 26 analysts has an average price target of $70.74 per share for DNKG, with forecasts ranging from about $42.50 to $102 per share. Of the analysts surveyed, 19 gave it an "Outperform" rating.
Investor's Business Daily notes that the company reported better-than-expected earnings per share and revenue on August 6. After losing $3.95 per share in 2020, the company is projected to lose $2.52 in 2021 and $1.62 per share in 2022. IBD says DKNG is "on track for profitability."
Tilman Fertitta is a smart operator. His presence on the board of DKNG will bring benefits to the company, where he is now a major shareholder.
In my opinion, DKNG is a Tesla-type investment as the Boston-based gambling company moves from losses to profitability. Gaming is a growing business and DKNG has a franchise in fantasy and an increasingly addressable market as more states legalize gambling. The increasing acquisition of Golden Nugget online is another potentially profitable feather in DraftKing's cap.
Gambling is always risky. When it comes to DKNG, DKNG's growing company could increase DKNG's market cap by tenfold in the coming years, making the stock a potential ten-dreamer. I own DKNG stocks and would increase my long position at any price weakness.
