All it takes is watching a televised sporting event through a couple of commercial breaks to see the surge in popularity of sports betting. Whatever the network or event, there are ads and partnerships promoting something most sports leagues shunned until fairly recently.
One of the biggest beneficiaries of the surge in sports betting is DraftKings (DKNG 4.96%). The stock has surged over 145% in the past 12 months and is poised to keep the momentum going in the coming years. If you have $1,000 to invest and time on your side, DraftKings is a great growth stock to consider.
States are slowly but surely getting on board with sports betting
Sports betting was long illegal in most of the U.S. until the U.S. Supreme Court ruled against the ban in May 2018, giving states the power to decide if they want to legalize and regulate sports betting in their respective jurisdictions. Since then, positive momentum has been building for the industry as many states have opened up to it.
As of the start of 2024, 38 states and Washington, D.C., have legalized sports betting to some degree. That's most of the country, but plenty of untapped opportunity remains. Notably, California and Texas -- the two most populous states -- have yet to jump on the bandwagon.
Some states' plans for legalizing sports betting seem well underway, while a few have made little progress. Given the appeal of sports betting tax revenue, it seems like it's only a matter of time before the last dozen states hop onboard. Since the Supreme Court's ruling, states have collected over $4.3 billion in tax revenue from the industry.
Profitability could arrive sooner than anticipated
In the third quarter of 2023, DraftKings generated $790 million in revenue, up 57% year over year. The $2.43 billion in revenue it made through the first three quarters of last year was up 76% from the the same period a year ago.
Data by YCharts.
The company still isn't profitable -- it reported a $283 million net loss in Q3 -- but that's to be expected. DraftKings is in full-blown growth mode, so the company is putting its dollars to work and prioritizing capturing market share over its bottom line. Even with that being the case, it's encouraging to see those losses trending in the right direction.
DraftKings expects its full-year 2023 revenue to come in between $3.67 billion and $3.72 billion, or 65% growth at the midpoint. For 2024, management's guidance has revenue rising to a range of $4.5 billion to $4.8 billion, while earnings before interest, taxes, depreciation, and amortization (EBITDA) should land between $350 million and $450 million. Profitability seems to be on the way for DraftKings.
DraftKings has become the market leader
FanDuel (owned by Flutter) was the market share leader in U.S. sportsbooks for a while. This changed in Q3 2023 when DraftKings took over the top spot with a 33% share of online U.S. sports betting and iGaming revenue. Its market share has increased by over 10 percentage points since Q2 2022.
The legal sports betting industry in the U.S. is still young. In 2023, online U.S. sports betting brought in around $7.62 billion. This figure is expected to hit $15.75 billion in 2028, with an expected compound annual growth rate of 15.6%.
Given the large and growing opportunity, the sports betting industry is becoming more crowded, and DraftKings faces increased competition from established platforms like FanDuel and newer ones like ESPN Bet.
As the sports betting world evolves and becomes more mainstream (for better or worse), DraftKings is likely to remain one of the industry's top companies. You likely won't regret a $1,000 investment in its future.
