If there’s one group that misses live sports more than fans, it’s the group of gambling stocks that includes DraftKings (NASDAQ:DKNG). However, it’s looking increasingly likely that live sports will return in some fashion. And that will be a catalyst for DraftKings stock.
It was less than a year since DraftKings held its initial public offering. So, the national shutdown caused by Covid-19 was the worst news possible. When the pandemic forced millions of Americans to shelter in place, it sidelined live sports. And it was more than just March Madness. All professional sports were sidelined.
DraftKings is the leader in fantasy sports with a 60% market share. This means that DraftKings relies heavily on the live sports industry. And with all major college and professional sports postponed due to the novel coronavirus, DraftKings has a limited revenue stream.
However, that doesn’t mean the company is getting no revenue at all. In fact, DraftKings is still giving gamblers the opportunity to bet on esports. And the company is even getting a boost from a charity golf match.
America Has Missed Live Sports
On Memorial Day weekend, Tiger Woods and Peyton Manning golfed against Phil Mickelson and Tom Brady in a charity golfing event. For fans of golf and live sports, like me, this has become must-see television.
This is what it’s come to folks. In the absence of live sports, gamblers who are looking to get their fix are resorting to betting on who will get a skin in a charity golf event.
So, I think we can safely say there is pent-up demand. But investors care about the here and now.
Investors are Giving DraftKings a Mulligan
Prior to the pandemic, DraftKings was having a great quarter. The company’s revenue increased 30% to $89 million. Also, DraftKings was showing a year-over-year gain of 60%.
And when everything shut down, the company had approximately $450 million in cash. DraftKings has acknowledged that the absence of live sports will cause the company to burn through $15 million to $20 million a month. That means that DraftKings should be able to weather a few months without live sports.
But that’s not the only reason that investors seem to be brushing off a near zero-revenue environment. As my InvestorPlace colleague Todd Shriber recently wrote, analysts are looking at DraftKings like a high-flying tech stock. And that means that they’re looking at the company’s future potential, not its present performance.
And that’s significant because investing in DraftKings is not without any risk. According to Morgan Stanley, DraftKings won’t be profitable until 2023.
It’s OK to Bet on DraftKings Stock
I don’t want to mislead you. There are still obstacles to getting professional sports up and running. And that means I wouldn’t bet an amount of money that means something to me that professional basketball and perhaps even major league baseball will resume or initiate a season. Both leagues may decide the reward isn’t worth the risk and say, “wait until next year.”
But don’t forget that ESPN and, by extension, Disney (NYSE:DIS) is a media partner of DraftKings. And one of the plans for the NBA returning is to host games at Walt Disney World’s Orlando resort.
It would be a shot in the arm for investors to see professional basketball or major league baseball return. But the big prize in gambling and fantasy sports is football. And right now, the National Football League (NFL) is moving forward as if it’s business as usual.
Matt McCall suggests that DraftKings may be overbought right now. He’s probably right. And it might not be a buy at this very second. But unless you believe that there will be a prolonged absence of live sports, then there’s no reason for you not to set a price target for DraftKings stock and buy.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
