What happened
DraftKings (DKNG 1.03%) had another great month as its stock price soared 13.8% higher in June, according to S&P Global Market Intelligence. The stock is trading at around $26 per share, up about 128% year to date as of July 5.
The markets were up in June as the S&P 500 index gained 6.5%, the Dow Jones Industrial Average climbed 4.6%, and the Nasdaq Composite jumped 6.6%.
So what
The online sports betting platform, DraftKings, continues to flourish, riding a resurgent market for technology and growth stocks. The Federal Reserve Board's decision on June 14 not to raise interest rates for the first time since March 2022 helped buoy pretty much all growth stocks and growing start-ups like DraftKings.
While interest rates are still high and could continue to rise, the sentiment around companies like DraftKings -- which are growing like crazy but aren't yet profitable -- improved as it suggests that rate hikes may be near a plateau. Lower interest rates are particularly good for young companies, since they lower the cost of borrowing to invest in growth.
NASDAQ: DKNG
Key Data Points
Speaking of investing in itself, DraftKings made an offer on June 16 to buy the U.S. business of rival PointsBet Holdings for $195 million. But on June 28 it was announced that the deal fell through as DraftKings missed the deadline to finalize the offer.
The market reacted favorably to DraftKings' decision to back out of the deal, as its stock price surged in the following days. It appeared to be more of a play to prevent Fanatics from buying PointsBet's U.S. business, thus thwarting a potential new competitor in its market, than one to boost market share, although the company did say the deal would have increased its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) potential for 2025 and beyond.
Now what
DraftKings has yet to turn a profit, but it has been growing revenue at a rapid pace. In the first quarter of 2023, it increased revenue 84% year over year to $770 million. Based on its growth, it raised its 2023 revenue guidance to a range of $3.135 billion to $3.235 billion from the previous range of $2.85 billion to $3.05 billion.
Also, DraftKings is among the leaders and most established players in a growing market, which is expected to nearly triple in size from a $7 billion business in 2023 to a $23 billion business in 2030. Currently, only 33 states allow sports betting, so there is plenty of room to grow.
DraftKings has seen its price-to-sales ratio increase from 3.4 a year ago to its current 4.5, so its valuation has jumped. Keep an eye on that number, and whether the company continues to move toward profitability in the second quarter.
