Shares of DraftKings (DKNG 4.96%) rose 209.5% in 2023, according to data from S&P Global Market Intelligence. The fantasy sports and sports betting expert delivered a steady stream of positive earnings and revenue surprises last year, punctuated by robust progress in the company's business expansion plans.
DraftKings chases an expanding American market
There's no denying that DraftKings' financial results fired on every cylinder last year. The company met or exceeded the consensus analyst targets across the board in all four earnings reports during calendar year 2023. On average, the reported net loss was 60% smaller than expected and DraftKings even saw positive earnings in August's second-quarter update. On the top line, the average revenue surprise was 12% -- a strong double-digit outperformance.
The muscular results largely sprung from bullish trends in the American gambling industry. Once only available in places like Las Vegas, Atlantic City, and Native American reservations, sports betting and casino games are now available in dozens of states, both online and in physical betting locations.
DraftKings' sports betting games are now available in 23 U.S. states plus Puerto Rico and Ontario, Canada. More locations are also considering legalized gambling bills. DraftKings' addressable market is growing, and the company is launching services to take advantage of the American opportunity as fast as it can.
Where is DraftKings going from here?
From a traditional value investor's perspective, DraftKings looks expensive today. The company is unprofitable and the stock trades an above-average 4.8 times sales. At the same time, the company has a couple of bullish trends in its proverbial pocket:
- As noted earlier, sports betting is gaining ground in America. Some of the largest holdouts -- Texas, Florida, and California spring to mind -- have seen dire financial trends recently and could use a fresh revenue stream. Taxable gaming activities could soon make sense in some areas where sports betting is currently not allowed.
- The company's sales are soaring amid this promising market development, and the negative profit margins are moving closer to breakeven over time. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) are expected to land near $400 million in fiscal year 2024. With the fourth-quarter report pending, the same metric should show a loss of roughly $105 million in the 2023 fiscal year. In other words, DraftKings is finding its financial footing.
Fellow Fool.com contributors Stefon Walters and Rick Munarriz expect DraftKings' good times to keep on rolling in 2024, despite its lofty valuation. The company's fortunes will rise or fall along with the progress of legalized gambling reform -- or lack thereof. As expected, gambling can be a risky investment and I'm happy to stay on DraftKings' sidelines until the industry's legal and regulatory backdrop has firmed up.
