Why DraftKings Stock Is A Sleeping Giant Despite Sinking Price
The gambling and online gaming site has pushed its poker chips to the center of the table in an all-out effort to establish itself as an industry force
Online gaming company DraftKings (DKNG) has grown rapidly over the past 18 months since becoming a publicly traded company by way of a SPAC reverse merger. It’s currently one of the most recognizable and popular stocks on the exchanges. Despite recent dips in their stock price, a look at what’s going on behind the scenes shows a company betting on itself to become a force to be reckoned with in the future.
Founded in 2012, DraftKings got its start in gaming with fantasy sports, starting with baseball. It has since become much more and is on the precipice of breaking out in many new and exciting ways. In addition to their staple of fantasy sports, they now offer online gambling and have recently rolled out the DraftKings Marketplace to sell sports-related NFTs (non-fungible tokens) to collectors in that red-hot sector.
Despite the relative youthfulness of DraftKings, they have been aggressive in their pursuit of expansion and trying to establish themselves as the big dog on the block. Back in August, they announced they had come to an agreement to acquire Golden Nugget Online Gaming, Inc. (GNOG) in an all stock transaction that was valued at around $1.56 billion. The absorption of a fellow up and coming gaming SPAC will broaden their exposure to new users, including giving them their existing database of more than 5 million customers.
DraftKings had also been reported to be in talks to buy Entain, an international sports betting and gambling company listed on the London Stock exchange. A $22.4 billion buyout proposal was submitted earlier in the fall and said to be double that of one put forth by MGM, Entain’s joint venture partner. However, DraftKings ultimately ended their pursuit to turn their attentions elsewhere.
Not simply content to add more customers for betting and gaming, DraftKings has also looked to diversify, especially into the worlds of cryptocurrency and NFTs.
One of the most intriguing recently confirmed collaborations is a deal between popular crypto Polygon (MATIC), which is an Ethereum-based scaling platform that already governs more than 100,000 blockchain gamers. This partnership will help support the custom NFTs being sold on the DraftKings’ marketplace and will also give DraftKings the option to be part of Polygon’s governance, and also be a securer on their network as a validator node with their own staking pool.
Going heavily into NFTs could prove to be a masterstroke for DraftKings as they have surged in popularity among collectors/investors intrigued by their scarcity and the security provided by their blockchain home. In 2021 alone, that market could near $18 billion in trading volume according to some estimates.
As of early October, the NFT market cap was nearing $5 billion with no slow down in sight. NFT subjects can really be just about anything but those focused on sports and popular athletes, like those being sold by DraftKings has a built-in stream of future customers given the intersectionality of gaming and sports fans around the world.
DraftKings is currently teamed with Autograph, a company co-founded by NFL superstar quarterback Tom Brady, to bring sports-related material and memorabilia to the NFT realm. The gaming giant has moved quickly, dropping limited NFTs featuring Brady and other pro athlete stars like Tiger woods, Derek Jeter, Tony Hawks and more. Furthermore, their drop schedule indicates the robust potential of collectors seeking such unique items.
Currently trading at $28.85 per share, DraftKings saw its value since spring of 2020 nearly quadruple to its all-time high of $74.38 before sinking to its current level. However, it may still be pretty early for investors wanting to get in. Of 22 analysts at TipRanks who have given an opinion, 11 have issued a “Buy” rating, nine have a “Hold,” and only one had advised to “Sell.” Their average 12-month share prices comes in at $58.42, a robust 102.5% increase from the present, One analysts has even issued a high target of $105 in the span, while even the most bearish of the group still came in at $34.
Much of DraftKing’s recent struggles (seeing the stock price drop more than 50% in the past three months) is tied to their overtly aggressive marketing and selling of itself. The Motley Fool’s Parkev Tatevosian detailed how the company is not sitting on their laurels after accomplishing major achievements, but are rather doubling down on them in the hopes of making them grow exponentially:
They are currently approved in 15 states for mobile sports betting and five for iGaming. They also have approval to operate in New York, which is a significant feather in the cap given their potential to bring in $1 billion in annual gross gaming revenue.
As of the end of September of this year, DraftKings had an all-time high of 1.33 million unique users and saw the average revenue from each player jump from $41 last year to $61 in 2021.
In the first nine months of 2021, DraftKings brought in an impressive $823 million in revenue, but sent $704 million of that back out the door in sales and marketing initiatives.
DraftKings has been aggressive and they have looked long. They have a number of balls in the air and will need to be precise to get all the moving parts working together and propelling them forward in the coming years. Their emphasis on growth and diversifying may create some volatility, especially in the short term.
However, as the old adage goes, you have to spend money to make money and the types of quality acquisitions and partnerships the company are working on will require a lot of capital. Luckily, they won’t have to spend like drunken sailors forever. Once they are more comfortably established, they hope their name brand will do a lot of this work for them. In the meantime, they are spending to make their own fortune.
It’s rare to see a company go this big in their early years, but DraftKings has clearly seen some openings they are hoping to leverage. If all goes well, they could be positioned on or very near the top of the gaming world in the coming years, which would truly establish them as a blue-chip company to reckon with. There’s no guarantee that all of these moves will ultimately result in the way they are hoping, but with such admirable ambition it will be difficult to bet against them.
DISCLAIMER: The author is not a financial advisor or expert. The opinions expressed in this article are intended for general educational purposes and entertainment only. They are not intended in any way to provide specific advice or recommendations for any individual or on any specific security or investment product. Individual investors are responsible for their own money and investment decisions. Remember, there is no guarantee that stocks or cryptocurrency will fulfill the analysts’ projections or increase in value. Please always do your own due diligence and if you invest, do so with proper caution. The author holds a small position in DraftKings, GNOG and Polygon at the time of publishing.
IF YOU ARE LOOKING FOR A STOCK AND CRYPTO TRADING PLATFORM, SIGN UP FOR WEBULL: You will receive free stock(s) worth up to $2,300 from signing up through this referral link by the deadline of their current promotional offer (Review their site for most current promotions) and making a minimum deposit of $100. I joined Webull and love it. I will also get a free stock if you sign up.
If you’re interested in investing in just cryptocurrency, Coinbase is offering $10 in free Bitcoin each to new account holders and their referrers when they buy or sell their first $100 of Bitcoin on their platform by using this referral link! They also offer ongoing free crypto rewards for Coinbase users who maintain an active balance.