The pinnacle of the National Basketball Association has arrived. The NBA Finals will pit the Golden State Warriors, starring Steph Curry, against the Boston Celtics, starring Jayson Tatum. The highly anticipated matchup started Thursday, June 2, and will be watched by millions of people.
Some of those people are likely to place wagers on the game's outcome on mobile sportsbooks like DraftKings (DKNG 1.38%). That has some investors understandably asking if they should buy DraftKings stock now in anticipation of the boost in betting. To answer that question, let's take a broader view of the company beyond the near-term lift from the NBA Finals.
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Revenue is surging, but so are losses
In addition to sports betting, DraftKings offers daily fantasy sports and iGaming (casino-style games like blackjack). Because it's a gambling business, DraftKings must gain approval to operate on a state-by-state basis.
The company is live in 17 states for sports betting, encompassing 36% of the population in the U.S. State-level legislation for gaming is further behind with DraftKings live in just five states, representing 11% of the population.
NASDAQ: DKNG
Key Data Points
DraftKings has found folks receptive to its services, growing revenue from $192 million in 2017 to $1.3 billion in 2021. Wagering is a popular activity, and bringing the activity to a mobile phone adds convenience. Previously, folks had to drive for hours to reach the nearest brick-and-mortar casino to make bets. With DraftKings, people can go from an impulse to wager in a few seconds flat. The convenience factor could induce folks to interact with the app more often and attract folks who would never travel to a casino.
DKNG Revenue (Annual) data by YCharts
Since states take a percentage of gross gaming revenue as taxes, increasing wagering activity raises revenue for the state. The win-win nature of the relationship suggests that DraftKings may find continued success expanding to more states for its services. Management highlighted three jurisdictions where it has the potential to start offering its services soon, including Maryland, Puerto Rico, and Ohio.
One significant challenge DraftKings faces is that its costs to acquire customers are high. In its most recent quarter ended on March 31, DraftKings generated $417 million in revenue and spent $312 million on sales and marketing. Those expenses are leading DraftKings to generate massive losses on the bottom line. This is not a new trend as DraftKings has lost money on the bottom line for several years.
DKNG Net Income (Annual) data by YCharts
DraftKings' stock is trading at a bargain price
The massive losses on the bottom line have worried investors, who have caused DraftKings stock to crash by 80% from its highs in 2021. DraftKings is now trading at a price-to-sales ratio of 3.8, near the lowest valuation in its brief history as a public company.
Investors who are comfortable taking a considerable risk can buy shares of DraftKings stock today. The NBA Finals and the increase in wagering the event will encourage is not the sole reason to buy DraftKings. The bargain price provides a meaningful reward that makes taking the risk in this unprofitable growth stock worthwhile.
DKNG PS Ratio data by YCharts
