Online-gambling company DraftKings (DKNG -2.31%) has no shortage of investors with opinions about its prospects. Most notably, famed investment manager Cathie Wood is a well-known bull. On the other side, popular short seller Jim Chanos has claimed DraftKings is overvalued.
Instead of just taking their word on it, let's take a closer look at the opposing views of DraftKings.
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The bull case
The optimists will point to DraftKings' prolific revenue growth. From 2017 to 2021, DraftKings revenue exploded from $192 million to $1.3 billion. What's more, the growth rate has accelerated for three consecutive years, culminating at 111% in 2021. The company operates a daily fantasy sport, mobile sportsbook, and iGaming website and platform. As a gambling company, it is dependent on states legalizing the activity and granting it a license to operate within the jurisdiction.
In that regard, it is making solid progress. It is live with a mobile sportsbook in 17 states and iGaming in five. States are in a win/win relationship with the mobile-gaming provider as legislatures boost tax revenue and DraftKings gets access to new markets. The tailwind from new states coming online could increase DraftKings' revenue for several years to come.
Already, DraftKings has accumulated 1.5 million average monthly unique players as of Dec. 31. That figure was up from 883,000 at the same time the year before. With potentially several more states to expand into, customer growth can continue.
Indeed, management thinks it has room to boost revenue to $8.1 billion annually in the long run. That's undoubtedly a long runway from the $1.2 billion it earned in 2021. At that scale, DraftKings expects it will deliver adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $2.1 billion.
The bear's viewpoint
The bears will not argue against the proliferating revenue growth at DraftKings; that much they will concede. However, they will point to what they view as the high cost of that growth. DraftKings is consistently reporting massive losses on the bottom line. In the year ended Dec. 31, 2021, DraftKings lost $1.5 billion. In 2020, it reported a loss of $1.2 billion.
Its most considerable expense is sales and marketing, which totaled $981 million in 2021 and $495 million in 2020. Each time DraftKings goes live in a new state, it invests aggressively to attract new customers before competitors do. Offers like a 20% deposit bonus or a 100% match bet can also be considered promotional activity.
That highlights the bear's argument that extreme investments artificially boost revenue growth for that very purpose. Once the investment is pulled back, revenue growth could slow. Or even worse, it may start to reverse as customers switch to providers offering the best bonuses.
It's no doubt that the bears are winning the argument right now. DraftKings stock has fallen a whopping 73% in the past six months.
