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Why DraftKings Stock Jumped 10.4% on Friday

By Travis Hoium - Apr 24, 2020 at 3:08PM

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It wasn't a traditional IPO, but it was still a good day.

What happened 

Shares of DraftKings (NASDAQ:DKNG) jumped as much as 18.4% in trading Friday after a reverse merger with Diamond Eagle Acquisition. In fact, it was Diamond Eagle's stock that became DraftKings today once the deal closed. Shares held gains throughout the day and were up 10.4% at the close. 

So what

This wasn't a traditional IPO, but it was a way for DraftKings to reach the public markets. The company merged with Diamond Eagle Acquisition and added the acquisition company's $400 million to its balance sheet. 

Mobile phone on a table with a sports betting app open.

Image source: Getty Images.

Reverse mergers aren't the way that companies usually come to the public markets, but it's a faster way for a company like DraftKings. 

Now what

The concern for investors now is that DraftKings isn't going to be a great operating company for the foreseeable future because there aren't any sports to bet on. It has built its business on betting on sporting events and is slowly being licensed in more states across the country. But without something to bet on, there won't be much revenue. I would wait a few quarters to see how profitable the company can be before jumping into this high-risk gambling stock that's coming to market in such an unusual way. 

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