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Here's What Investors Need to Know Before Buying DraftKings Stock

By Rachel Warren and Jose Najarro – Dec 7, 2021 at 1:50AM

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The fantasy sports company recently reported third-quarter earnings.

Fantasy sports and online betting company DraftKings (DKNG -3.58%) is up nearly 200% since its IPO in 2020. Is this stock worth a look for long-term investors?

In this segment of Backstage Pass, recorded on Nov. 1, Fool contributor Jose Najarro highlights the key points investors need to know about these company before taking the plunge. 

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Jose Najarro: So the first company I'm going to be talking about is going to be DraftKings and let me just share my screen really quick with you guys. Share screen real quick and here we go. DraftKings for those not familiar, currently traded under the NASDAQ has ticker DKNG.

The IPO day, they first started trading as DraftKings in April 24th of 2020. A little bit over, I want to say maybe 16 months ago. This was, I want to say, one of the most successful SPACs or special purpose acquisition companies we've seen in the past few years. This one right now, is trading near the price of around $50, high 40s, where most SPACs starting off at that $10.

This is probably one of the most successful. We've definitely seen a lot of other SPACs get burned throughout the process. DraftKings right now is a company that focuses on online sports betting.

They do sports betting, they do fantasy sports book, online casino, which is the iconification. They're also starting into a new marketplace called NFT, NFT marketplace and I'll talk a little bit about that in a bit. But first I just want to talk a little bit about the growth potential for DraftKings.

Right now, many states still remain to legalize at least one of their services usually when a state legalizes something either online casino or sports betting, it doesn't mean the other gets approved. It's usually one time for sports betting and sometimes for online casinos. There could be possibilities when they both get approved. Even though they might have sports betting, it might not also have online casino. 

Another thing about DraftKings is originally they started with mainly business to business and had business to consumer. But in their most recent investors' presentation, which was earlier in 2021, the CEO mentioned that he wants to move more into business to consumers.

That's where I really, really want to focus. We've seen that with the amount of products that they're coming out with. In my opinion, they are really entering new markets to increase that user acquisition growth. Like I mentioned, the first one is the NFT marketplace, this is the most recent.

If you go to their website, they have NFT marketplace and they partnered up with Autograph, I think it's the company, I feel a percentage owner is Tom Brady, I believe, he owns a good portion of that private business. They worked with celebrity athletes to create online collectibles. They've worked with big athletes like Tony Hawk, Tom Brady, Tiger Woods and numerous others and every time they come out with a collectible, they sell out within hours. This is creating a new marketplace.

The great thing about this is it allows the company to do stronger user acquisition growth. For example, let's say you're not big into sports betting, let's say you're not big into online casinos, but you are big into the NFT marketplace.

You create an account for the NFT marketplace. But now DraftKings is able to, "Hey, we have your information, you can actually use this same account for your NFT marketplace. If your state allows, if all regulatory stuff approves, you can use the same account for online casino for sports books. Let's start sending you some specials. If you deposit about $10, we'll give you an extra $10 for casino or gaming."

I believe this marketplace allows them for this reel effect to grab more users. Their DraftKings platform is like a social platform where if you'd make a sports bet or something online, you can share that bet with others and be like, "Hey, this is the bet I made," and it creates that social platform with it. DraftKings in my opinion seems to be very innovative in the way that they are doing.

Another thing about DraftKings is, I want to say they're not too shy to use money and their stock for acquisition purposes. Recently they made the acquisition of Golden Nugget. Golden Nugget mainly focused on online casino. DraftKings was like, "Hey, right now online casino users, we grab this user base, will be easy to cross sell the other platforms or other products that we have." I think it was a great acquisition.

There was also recent news that DraftKings was going to use a push to purchase Entain, which is European sports betting company. They're globally, but they're based, I believe in Europe. The acquisition did not go through, but that was going to be a huge, huge purchase if they did that. It shows me management is trying to see growth wherever they can. If they're making new products, so be it. But if they see growth by doing acquisitions, so be it as well.

Jose Najarro owns shares of DraftKings Inc. Rachel Warren has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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