DraftKings (NASDAQ:DKNG) is one of the Top 25 holdings in popular investment manager Cathie Wood's ARK Innovation ETF (NYSEMKT: ARKK). In fact, as of this writing, it ranks 14th on the list with 9.9 million shares held at an overall value of $627 million.

Wood is likely happy with the stock's performance; it's up 22% in the last month and 42% for the year. Even more impressively, DraftKings' operating performance has been excellent. Let's review that performance and try to determine if the stock can go even higher from here.

Person on phone and computer, watching a game.

Image source: Getty Images.

One state at a time

DraftKings offers daily fantasy sports, mobile sports betting, and iGaming services. As you can imagine, much of its success depends on getting regulatory approval. In that regard, DraftKings is making progress. 

DraftKings is now live with mobile sports betting in 14 states representing more than 25% of the U.S. population.  In iGaming, the company is live in four states that represent 10% of the U.S. population. The majority of the U.S. population still does not have access to DraftKings services, and then there are international geographies to consider.

The expansion is already growing users and revenue rapidly at DraftKings. In the most recent quarter, the company reported 1.1 million monthly unique players, up from 295,000 in the same quarter last year. The increase is due to access to new states and high customer retention rates.

New customers and increasing engagement from existing customers boosted revenue by 320% in the second quarter from the same time last year. A robust sports schedule also assisted the company with very few canceled events due to COVID-19 outbreaks, a more common scenario last year. This year, sports leagues are doing a better job of identifying coronavirus infections early, isolating individual players or groups of players, and playing the game at the originally scheduled date and time.

Things are going so well for the company that management has had to twice raise its 2021 revenue target. The new target, a range between $1.21 billion and $1.29 billion, is 14% higher than its previous target and would equate to a year-over-year increase of between 88% and 100%.

Can it continue the momentum? 

DraftKings can absolutely continue this momentum. The company's growth rates are phenomenal, but investors should remember it is still in the early stages of development.

And states, hungry for increased tax revenue, are cozying up to regulating and allowing gaming. Indeed, this is from DraftKings' management: 

In 2021, 25 state legislatures have introduced legislation to legalize mobile sports betting, 5 state legislatures have introduced legislation to expand their existing sports wagering frameworks and 2 state legislatures have introduced legislation to legalize sports betting limited to retail locations. In addition, 4 states have introduced iGaming legislation and 3 states have introduced online poker legislation.

That highlights the enthusiasm states have for legalizing the games that DraftKings offers. It remains to be seen how many of these legislative efforts will bear fruit, but the good news for shareholders is that one of the most important factors for DraftKings stock is headed in the right direction. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.