Seven days. Ark Invest has added to its DraftKings (DKNG -0.87%) stake for seven consecutive trading days through Tuesday's close. It's clear that Cathie Wood -- the co-founder, CEO, and stock picking mastermind of the Ark Invest family of exchange-traded funds (ETFs) -- has taken a shine to the online wagering specialist.
Ark Invest now owns 5% of DraftKings' shares outstanding. Its weighting across all of Wood's ETFs makes it the 14th-largest holding. Spreading the purchases across several days gives Ark Invest the ability to build up its position without moving the market, but sometimes there's a price to pay with dollar-cost averaging. The stock is trading 9% higher than it was before Wood joined the stock's frequent buyer club.
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Doubling down on DraftKings
It's been a wild round trip for DraftKings investors. The stock hit the market in late April 2020 as a special purpose acquisition company (SPAC) deal, initially trading in the high teens. It nearly hit $75 when it peaked 11 months later, but it's now back to the high teens.
DraftKings is a name that many associate with fantasy sports wagering, but that's just an icebreaker to its more lucrative online sportsbook. The fantasy sports angle helped it broker partnerships with leagues, individual teams, and even sports broadcasting networks, but that Trojan horse offers more conventional gambling opportunities wherever it's legal.
It works. Revenue has accelerated over the past three years:
- 2018: 18%
- 2019: 43%
- 2020: 90%
- 2021: 111%
Growth had to decelerate at some point, and that's what's happened. Revenue rose just 37% in the first quarter of this year, followed by a 57% top-line gain for last month's second-quarter report. DraftKings has boosted its full-year guidance in each of this year's first two quarterly updates.
There's still a lot of runway left. Gambling is still frowned upon in many states, but regulatory hurdles are starting to ease as politicos eye the potential to generate more tax revenue. In the meantime DraftKings' user base is expanding and its patrons are opening their wallets wider.
The number of unique paying customers has risen 30% over the past year to hit 1.5 million. The average revenue per user is also 30% higher. With football season kicking off earlier this month and hoops to follow, this could be a potent time for DraftKings. The state of the economy will also be worth handicapping here. There was a time when it was generally believed that casinos and gambling in general are recession resistant. When money's running low, gambling offers a potential way out. However, that theory has been largely debunked. Outside of lottery ticket sales that do in fact see an increase in economic wobbly times, gambling is at its best when the consumers are confident about their ability to swing for the fences.
They're not the only ones swinging for the fences. Wood did a lot of buying during Tuesday's sell-off. DraftKings wasn't the only name that Ark Invest was buying on a down day. However, it is the only equity that she has managed to nibble on every trading day since the Friday before the Labor Day weekend. It's a game that Wood clearly feels ready to play as an investor.
