The chips weren't down for DraftKings (DKNG +1.71%) in 2023. The sports wagering and fantasy sports speedster has more than tripled this year, one of the market's biggest gainers with a 215% surge heading into the final trading day of 2023.
It's easy to steer clear of a big winner, fearing that it's due for a breather after a hot run. DraftKings doesn't fit that bill. Its business improved dramatically as this year played out, earning its upticks. It's also still a historical bargain, as the shares are still trading for less than half of their peak set in the springtime of 2021, despite being a three-bagger in 2023.
I like DraftKings' chances of continuing to hold a winning hand in the year ahead. Let's take a closer look at why the online sportsbook operator is my top growth stock for 2024.
NASDAQ: DKNG
Key Data Points
It's a modest origin story
There are some fairly good reasons why DraftKings wasn't on most investing radars before the breakout season it experienced in 2023. For starters, DraftKings didn't go public via the traditional IPO route. A corporate combination was announced in late 2019 that would lead to its market debut as a special purpose acquisition company or SPAC. Going the SPAC route was a popular way to streamline the process of going public at the time, but history hasn't been kind to most companies that went this route. DraftKings is one of only a handful of successful SPAC debutantes.
Timing also didn't help. DraftKings eventually began trading in April of 2020, a month into the pandemic-related U.S. shutdown that initially postponed some league sporting events and curtailed fan attendance at home games for several months. It's easy to see why investors weren't won over by the prospect of placing bets on live sports being decided in arenas and playing fields filled with empty seats, cardboard cutouts, or virtual fans.
Lost in the shuffle is that the U.S. Supreme Court had decided in 2018 to legalize sports wagering. It was a move that would transform DraftKings into more than just a leader in fantasy sports, even if it wasn't obvious five years ago with individual states to win over in a highly regulated industry. DraftKings may have moved higher in its first year of trading, but that was the same knee-jerk pop that sent most growth stocks higher without anyone checking receipts.
The stock that would go on to trade as high as $74.38 11 months after its trading floor premiere fell briefly into the single digits in the springtime of 2022. It is there that DraftKings would transform into one of the market's better performers, but it's not too late. This opportunity is still knocking in 2024.
Image source: Getty Images.
Always bet on growth
DraftKings has become a giant among online sportsbooks, and the path it took to get there helped. It's been able to broker deals with teams, leagues, networks, and sporting venues dating back to its roots in fantasy sports. Now it's simply turning on the spigot of its more lucrative online sportsbook in markets where it's allowed.
There are now 2.3 million monthly unique paying customers on the platform, a 40% increase over the past year. DraftKings customers are also spending 14% more than they were a year ago, stacked on top of its widening wingspan. Revenue growth has been spectacular for DraftKings, topping 70% for the past four years.
- 2018: 18%
- 2019: 43%
- 2020: 90%
- 2021: 111%
- 2022: 73%
- 2023: 76% (through the first nine months)
Top-line gains may have slowed to 57% in its latest quarter, and DraftKings is targeting revenue growth of just 44% to 50% in the current quarter. Its guidance calls for a 65% top-line increase for the year that's about to come to a close, but I'm burying the lede here.
DraftKings was forecasting a revenue rise of only 33% in 2023 when the year began. It keeps cranking out "beat and raise" performances, and that's why its top-line goal has more than doubled as this year plays out. Do you think that's going to change in 2024?
There are more states and countries to tackle. Acquiring customers isn't cheap, but the scalability is starting to pay off. Every analyst following the company expects DraftKings to post its first profit as a public company this quarter. Sports betting stocks may seem like a gamble to some investors, but it's hard to get in the way of momentum. The fundamentals for DraftKings keep getting better with every passing quarter. It's an opportunity in 2024 that you might not want to fumble.
