The history of online sports betting dates back to 1996. Over the years, the landscape has changed with the arrival of new competitors in the market, with new states legalizing the practice and the development of technologies that allow better data transfer rates. faster and more data in the hands of punters. . But some things have also stayed the same, like offering free bets, bonuses and other enticing antics to grab the attention of more bettors.
DraftKings (NASDAQ: DKNG) is now a major player in this online sports betting space, and is flexing his muscles and money to attract and keep punters as he faces fierce competition from FanDuel (detained at 95% by Flutter Entertainment), and BetMGM (jointly owned by MGM Resorts and Entain). As industry-wide online sports betting revenue grows, can DraftKings control its spending enough to provide a treat for investors to savor in the long run?
Second quarter revenue growth of 297% gives investors reason to be excited
Second-quarter revenue was $ 298 million, a 297% year-over-year increase for the same period in 2020, which speaks volumes given that many between us were stranded amid the throes of the COVID-19 pandemic around this time, and looking toward online entertainment for freedom. Perhaps more important than the massive increase in revenue, the 281% increase in the number of monthly unique players in online games, as well as the increase in average revenue per player of 26% over the year. former. New players and increased revenue per player should pave the way for continued revenue growth.
The company has seen an increase in the number of active paid bets for the NBA playoffs as well as the Masters golf tournament. But what should give investors additional enthusiasm for continued growth is that the NFL debuted in September – the end of the third quarter – and is the third largest online betting sport in the world, and the first in the United States, by volume.
Clarification on Entain takeover proposal calms investors’ game
In September, reports revealed that DraftKings was planning a $ 22.4 billion takeover offer for Entain, one of the world’s largest online gaming and gaming groups, which jointly owns the competing brand of DraftKings, BetMGM. The idea of the takeover did not appeal to DraftKings investors. The proposal initially drove Entain’s share price to an all-time high, then, combined with a second quarter shortfall, lowered DraftKings’ share price by nearly 27% from September 9 to October 22.
After the company announced on Oct. 26 that it would drop its bid for Entain, investors rejoiced, pushing the stock up more than 5%. He also contributed to the purchase by ARK Investment Management of Cathie Wood of 235,000 shares.
Third quarter profits could be the deciding factor to buy now
Analysts disagree on ratings for DraftKings stock, with odds values spanning the gamut from sell to buy. BTIG launched the hedge on October 27 with a neutral rating, while Roth Capital started its hedge with a sale. Meanwhile, Craig Hallum analyst Ryan Sigdahl reiterated a buy note in September after second quarter results, raising his price target 17%, from $ 60 to $ 70.
Part of the reason for the disagreement could be based on the increase in operating expenses as the business continues to grow. In the second quarter, generally accepted accounting principles (GAAP) operating expenses were more than double what they were in 2020 on a quarterly year-over-year comparison, driven by selling expenses and marketers who have almost quadrupled over the same period. If the third quarter, supported by a continued increase in income, can somehow be supported by further spending restraint, there is a good possibility that the stock will turn the corner.
The current share price sits at $ 48, well below the 52-week high of $ 74, and a 46% discount from Sigdahl’s target, which is in line with target. average analyst price of $ 70. However, the company has a history of shortfall. Over the past five quarters, actual profits have been below consensus estimates, leaving investors to ponder the idea of yet another dud. For now, I am closely watching the third quarter earnings call due on November 5. If revenues can match the guidance provided in the second quarter, as spending shows signs of stability, a profit surprise could be in store, making the September liquidation a great opportunity for investors.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.Source link