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Why Shares of DraftKings Were Surging This Week

By John Ballard – Dec 10, 2021 at 10:08AM

Key Points

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This meme stock was sizzling after the company announced plans to enter the NFT market.

What happened

Shares of DraftKings (DKNG 7.38%) were up 10.8% through Thursday's market close, according to data provided by S&P Global Market Intelligence. On Tuesday, the company announced plans to launch gamified non-fungible tokens (NFTs) that will debut on the DraftKings marketplace during the 2022-2023 NFL season. 

DraftKings is partnering with the NFL Players Association (NLFPA) and OneTeam Partners, which gives it licensing rights to use the name and likeness of active NFL players. This is a positive development for a sports betting company that is trying to find ways to improve profitability.

A person using a mobile phone.

Image source: Getty Images.

So what

Management is working to make the business sustainably profitable. The legalization of sports betting is a positive tailwind driving growth. The company believes it could generate between $5 billion to $7.3 billion in revenue combined from online sports betting and its iGaming business over the long term. That would put adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) at approximately $1.7 billion, based on management's long-term outlook.  

The company has not generated a profit to this point, however, despite the stock price soaring to a high price-to-sales ratio of over 20 earlier this year. The stock has been cut nearly in half over the last three months, as investors may be getting impatient with the company's mounting losses on the bottom line. With the entry into NFTs, the stock is at least offering much better value than it was a few months ago.

DKNG PS Ratio Chart

DKNG PS Ratio data by YCharts

Now what

Entering the hot NFT market, which generated a record $2.5 billion in sales through the first half of 2021, could be a lucrative opportunity. Sales of digitized tokens could generate high margins and drive higher customer interest for DraftKings' business.

DraftKings needs to show progress toward profitability to sustain a higher stock price. The NFT market could get it there faster and seems to fit perfectly with DraftKings' focus on sports betting.

John Ballard 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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