Exercise Caution with DraftKings after Rapid Growth


Article Posted on: November 17, 2023, 03:55h.

Last updated on: November 17, 2023, 03:55h.

In the past month, DraftKings (NASDAQ: DKNG) shares have experienced a noteworthy rise of 38.31%, and its stock has surged 236.60% year-to-date. However, some market analysts are advising caution with the growing gaming company.

DraftKings Cashpicks
Inside a DraftKings office. A research firm says some caution is warranted with the high-flying gaming company. (Image: Wall Street Journal)

At its investor day earlier this week, DraftKings impressed the investment community with heightened 2023 and 2024 earnings before interest, taxes, depreciation, and amortization (EBITDA) and revenue guidance. The gaming company delivered strong third-quarter results, potentially benefitting from a softer competitive environment in the sports betting sector.

Market observers reported, “Most salient was the unusually soft competitive landscape in the July-September period where DKNG’s market share surged,” observed Eilers & Krejcik Gaming (EKG). “Barstool was in limbo, BetMGM was light on spending and by its own admission, running out a sub-par sport betting product. Caesars was also cutting spending and Fanatics was just finding its feet.”

New players such as Bet365, Penn Entertainment’s (NASDAQ: PENN) ESPN Bet, and Fanatics are emerging competitive threats to the established online sports betting operators like DraftKings.

DraftKings Ready for Elevated Competition

DraftKings has prepared for competition from the new entrants to the sports betting space, aiming to uphold its strong position in the US sports wagering industry.

As of now, DraftKings and FanDuel dominate the US sports wagering industry, comprising over 70% of the market share. However, data suggests DraftKings is also increasing its market share. Meanwhile, smaller operators are facing challenges.

Competition in the sports wagering industry is evolving, and established operators and new entrants are better equipped to compete effectively, upping the stakes in the industry,” EKG noted. “Multiple brands like ESPN Bet, Fanatics, and bet365 are coming with scale ambitions, deep warchests, competitive products, and sophisticated operational strategies.”

DraftKings Fundamentals Are Strong

Despite the stock’s strong performance this year and the emergence of new rivals, DraftKings’ strong fundamental outlook should not be overlooked. The company is expected to have over $1.2 billion in cash by the end of this year, and it is seeing reduced time for a customer to become profitable for the company.

“DraftKings said its 2023 customer cohort will pay back its acquisition costs in 2.3 years, as opposed to nearly 3 years for 2021 customers. The trend is driven by things like improved bet mix (more parlays!) and marketing efficiencies,” concluded EKG.

These positive outlooks are likely behind the recent targets upgrades on DraftKings by sell-side analysts.



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