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DraftKings (NASDAQ:DKNG) is one of the top sportsbooks of the nation and it is constantly expanding across the states. DKNG stock, however, shows a different picture.
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Sports betting in the U.S. is gaining popularity. The industry is booming since the Supreme Court legalized sports betting. A lot of new customers are getting excited and joining the sports betting industry.
Still, DKNG stock has been declining since March and is at $27.81 today, pennies above its 52-week lows.
In March, the stock went as high as $74 and tumbled in December. True, it is the same stock that was once trading for $10, but it is advisable to not expect DKNG stock to hit all-time highs anytime soon. I believe the company is good but there are certain risks that make DKNG stock a risky bet. Let’s dig deeper into them.
In the third-quarter results, DraftKings saw a 60% rise in revenue to $213 million and a record 1.3 million monthly unique paying customers on the platform.
There is a high level of engagement and people are getting excited about enjoying their viewing experience. The gaming industry is in the growth stage and the legalization of sports betting is fairly new which will work in favor of the company.
DraftKings is leaving no stone unturned to expand its presence and is consistently growing the business through partnerships.
It has a partnership between NFL Players Association and OneTeam Partners which will grant licensing for the players’ name, likeness and image rights to DraftKings. The company will use it on the NFT marketplace from the 2022-2023 season.
It is another feather in the cap for the company as it already has a growing list of NFT partnerships.
Further, the Boston Bruins have also named DraftKings as the official fantasy sports partner in a multi-year deal. It is a strategic agreement for DraftKings and advances its relationship with another party as an official sports betting partner.
Mounting Losses Are an Issue
If you are only concerned about the fundamentals of the company, you will see mounting losses as a red flag. DraftKings loss before taxes stood at $541 million as opposed to $396 million in the same period a year back.
Further, its loss from operations is also as high as $546 million as opposed to $348 million in the same period the previous year.
This surge is mainly a result of the rise in marketing and sales expenses. It increased by 50% this quarter as compared to a year earlier. In the third quarter, the marketing and sales expenses stood at $304 million.
This is a matter of concern for investors. Since the company is entering new states and expanding through partnerships, it is burning heavy cash and it could be a sign of trouble in the long term.
Unless DraftKings brings the marketing and sales expenses under control, it is hard for the company to turn profitable in the next couple of years.
The Bottom Line on DKNG Stock
Do not compare the stock with its past performance. A lot has worked for the company and a lot hasn’t but the upside is too hard to ignore.
If you buy the stock at $30, there is a solid chance of it hitting the $40s soon. It may not reach the range of $70s anytime soon but you will still be able to make money.
Do not write off DraftKings just yet. It has a lot planned ahead and with the legalization of sports betting, it has ample opportunities to grow.
Its revenue is growing tremendously and as long as it manages to expand the user base, it will continue to generate money. Sports betting fan or not, this dip in DKNG stock is a good time to enter.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long-term gains. Her knowledge of words and numbers helps her write clear stock analysis.
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