DraftKings (DKNG 1.38%) is a sports betting company whose stock price over the past few years has mirrored many high-profile growth stocks. From March 2020 to March 2021, its stock price jumped from $12 to $71; by March 2022, it had dropped to $16.
Last year was a much-needed bounceback, though. DraftKing's stock had a huge surge in 2023. It's still down more than 50% from its March 2021 peak, but last year was a step in the right direction.
Despite its impressive 2023, I believe DraftKing's stock could continue its momentum in 2024. Here are three reasons why.
NASDAQ: DKNG
Key Data Points
1. Sports betting is picking up momentum among states
In May 2018, the U.S. Supreme Court declared the Professional and Amateur Sports Protection Act (PASPA) unconstitutional, paving the way for states to have the power to choose whether they wanted to legalize and regulate sports betting. As of the beginning of 2024, 37 states and Washington, D.C., had legalized some form of sports betting and were up and running.
North Carolina has legalized sports betting, but it is not yet operational. However, DraftKings and NASCAR recently struck a deal that paves the way for DraftKings to operate in the state whenever it does begin operating this year. North Carolina would be the 27th state in which DraftKings Sportsbook operates.
The expansion of DraftKings' addressable market will depend a lot on states legalizing sports betting. Legalization efforts seem to be gaining momentum. At the time of the Supreme Court's decision, five states had legalized sports betting. Through 2020, eight more states joined in, and by the end of 2022, 35 states authorized the activity.
This growth will likely continue as states see the rise in popularity of sports betting and how much money can be made from it. California and Texas -- the two most populous states in the U.S. -- are notable holdouts on sports betting. There's no telling when these states will pass measures, but there's still a lot of market that DraftKings has yet to pursue.
2. Profitability could be right around the corner
DraftKings is in full-blown growth mode, so it's not completely surprising that it's currently unprofitable. However, the company has been showing encouraging improvement in its finances. Its initial reported revenue in the first quarter of 2019 was $68 million. In the third quarter of 2023, it reported $790 million in revenue, up 57% year over year.
DKNG Revenue (Quarterly) data by YCharts.
Better-than-expected third-quarter results caused DraftKings to raise its fiscal year 2023 revenue guidance to $3.67 billion to $3.72 billion (up from $3.46 billion to $3.54 billion). It expects to have an earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $95 million to $115 million versus the previous estimate of $190 million to $220 million.
DraftKings anticipates its fiscal year 2024 revenue to come in at $4.5 billion to $4.8 billion. More importantly, however, it's expecting EBITDA of between $350 million and $450 million, putting it on a path to profitability for the year.
3. A rising tide lifts all boats
The online sports betting market in the U.S. is expected to reach revenue of around $9.65 billion this year. From 2024 to 2028, the industry is projected to have a compound annual growth rate of 13%, with the number of users reaching 52 million. Globally, the online sports betting market is expected to hit revenue of just over $67 billion by 2028.
In October 2023, DraftKings became the U.S. leader in online gambling, earning 31% of the gross revenue, according to research company Eilers & Krejcik Gaming. It surpassed FanDuel (30%), which had long held the top spot. As the sports betting industry grows and the pie gets larger, DraftKings is well positioned to take full advantage of an expanding market and maintain its leadership position.
