As an avid sports fan, I have been following the world of sports betting for some time now. But even many casual and non-casual sports viewers can attest to how popular sports betting has become. All you have to do is be watching a game (of virtually any sport) and see a commercial for an emerging sports betting platform.
One of the leaders in sports betting is draft kings (DKNG -2.32%), has been operating for over 10 years. Despite being one of the industry's pioneers, the company is in the early stages of what it could eventually become. If you're looking for a good buy in an emerging bull market, here are his three reasons to look no further.
1. The market size has a lot of room for expansion.
Momentum has been building since May 2018, when the U.S. Supreme Court cleared the way for states to legalize and regulate sports betting. At the time of the Supreme Court's decision, five states had legalized sports betting. Currently, 38 states and Washington DC are participating, and DraftKings currently operates in only 26 of them (it will be 27 once North Carolina is operational).
DraftKings has two main ways to expand its total addressable market. 1) launching in states where sports betting is legal but not yet operational, and 2) legalizing sports betting in new states. Each scenario presents DraftKings with millions of new adults as targets. More is better, especially when the company's revenue per monthly unique payer (MUP) is increasing. His average per MUP on DraftKings in 2022 was $109. In 2023, it rose to $116.
It remains to be seen when the currently delayed states will legalize sports betting, but several states have bills in the works. The mainstream sports betting industry as a whole is relatively young. It's natural to think that more states will get on board once they get a snapshot of the tax revenue that legalization will generate. As a leader in this space, DraftKings is well-positioned to capitalize on that trend.
2. Finances are heading in the right direction
DraftKings' main focus right now is growth and gaining market share, but that's not slowing the company's path to profitability. Although profitability remains low, revenue growth has been impressive. Revenue for the fourth quarter of 2023 was $1.23 billion, up 44% year over year and significantly higher than just a few years ago.
DKNG Revenue (Quarterly) Data by YCharts
After a strong end to the year, DraftKings has raised its 2024 revenue outlook from $4.5 billion to $4.8 billion to $4.65 billion to $4.9 billion. Under the new guidance, sales are expected to increase 27% to 34% year over year.
Aside from revenue, DraftKings expects to generate between $310 million and $410 million in free cash flow in 2024. This gives the company the financial flexibility to pursue acquisitions to accelerate growth (one of which we discuss below) or invest in technology to improve its core . product.
Profitability is important, but for now, DraftKings' focus on growth is the right move long-term.
3. Acquisition of Jackpocket contributes to business diversification
DraftKings recently announced that it has agreed to acquire Jackpocket in a deal worth $750 million. Jackpocket is the leading lottery app in the United States, and this deal gives DraftKings a presence in his $100 billion industry, which is still growing at a good pace. This acquisition will enable DraftKings to cross-sell products, increase customer acquisition, and strengthen its position through increased customer lifetime value.
DraftKings expects this transaction to result in $260 million to $340 million in incremental revenue (additional revenue generated by the acquisition) and $60 million to $100 million in incremental adjusted EBITDA by fiscal year 2026. I estimate that. By fiscal year 2028, we expect these numbers to reach $350 million. $450 million and $100-150 million, respectively.
Sports betting will continue to feed DraftKings, but opening up new revenue streams will strengthen the business and reduce some of the risks of its intensive business model.
