According to ETF.com, the Roundhill Sports Betting & iGaming ETF (NYSEARCA:BETZ) has the largest allocation of DraftKings (NASDAQ:DKNG) stock out of the 10 funds that own DKNG stock.
As of July 12, DraftKings had a weighting of 5.26% and was BETZ’s fifth-largest holding. The ETF’s top 10 holdings account for almost 55% of the fund’s $89 million in total assets under management.
As growth stocks go, I like DraftKings’ chances. In my last article about the online sports betting company, I enthusiastically sang its praises.
“When it comes to DraftKings, I think the average sports fan sitting at home can see the writing on the wall. As states legalize sports betting, many sports fans will start gambling on games. And the number of states in which DraftKings facilitates sports betting will grow exponentially, leading to higher sales, and ultimately, profits for the company,” I wrote on June 17.
“For some growth investors, betting on DraftKings stock at 12 times EBITDA is not a silly notion, but a bet on the future of America.”
Since then, it’s come back to earth, losing 23% of its value in slightly less than a month. That would be a bad thing if it weren’t up 203% year-to-date through July 10.
Where it goes from here is anybody’s guess. It really depends on when professional sports get back to playing their respective sports. In the meantime, DraftKings will continue to refine its business and business model. Long term, I remain confident in its future success.
In the meantime, I thought I’d quickly look at the other four stocks in BETZ’ top five holdings to determine if any of them can hold a candle to DKNG.
Flutter Entertainment (PDYPY)
Irish-based Flutter Entertainment is a much bigger competitor with annual revenues of $4.8 billion compared to DraftKings’ annualized revenue of $454 million as of March 31.
In early May, Flutter completed its $6 billion, all-stock purchase of the Stars Group, with the Canadian company’s shareholders getting 0.2253 shares of Flutter for every share held in Stars.
Stars brought several different brands to the table, including Sky Betting and Gaming, PokerStars, and Full Tilt, to go along with Paddy Power, Betfair, and FanDuel, DraftKings’ biggest rival in fantasy sports.
While Flutter makes money, its profits have slowed in recent years as competition has intensified.
GVC Holdings (GMVHY)
Based in the U.K., GVC generates almost 60% of its annual revenue and 72% of its underlying EBITDA. The company’s customers made more than 420 million sports bets in 2019, making it one of the world’s largest online sports-betting operations.
Its top brands include Ladbrokes, PartyPoker, Eurobet, and Sportingbet. Its online revenues grew by 13% in 2019 to 2.17 billion British pounds. On the bottom line, its underlying EBITDA in 2019 fell by 10% to 678.3 million British pounds.
It generates 54% of its revenue from the U.K. and 46% from the rest of the world. It expects in future years to increase the amount of business it does outside its home market.
Twenty-three years in the making, Kindred Group trades on Nasdaq Stockholm and has since June 2004. Started by founder Anders Ström in 1997 with one brand — Unibet — it now has 11 different brands serving more than 25 million customers.
In February 2020, Kindred signed a multi-state deal with Caesars Entertainment (NASDAQ:CZR) to pursue licensing for online sports betting and online gaming in Indiana and Iowa through Caesars’ Horseshoe Hammond property in Indiana and Harrah’s Council Bluffs in Iowa. These are the third and fourth states for Kindred following its entry into Pennsylvania in November 2019 and New Jersey in June 2019.
In the first quarter ended March 31, 2020, Kindred’s revenues increased by 14% (excluding currency) to 249.7 million British pounds with an underlying EBITDA of 42.5 million British pounds, 37% higher than a year earlier.
The maker of online gambling software went public on May 4, gaining 56% in its first day of trading. Through July 13, it’s up 202% from its initial public offering price of $8.50.
Gan, which is short for GameAccount Network, has developed a proprietary enterprise software system called GameSTACK for land-based casino operators, which it licenses to them for online gaming, online sports betting, and virtual simulated gaming.
In the first quarter ended March 31, the company’s revenues (excluding other revenue, a one-time item) increased 64% to $7.7 million, from $4.7 million a year earlier. The U.S. accounted for 81% of its revenue during the quarter. In terms of profits, Gan’s adjusted EBITDA in the first quarter was $2.6 million, 32% lower than a year earlier.
The company expects revenue of at least $37 million in 2020.
The Bottom Line on DraftKings Stock
No question compared to its four peers, DraftKings stock is expensive. But like a suit that’s handed down to a teenager from a father, it’s going to take the online sports and online gaming sensation some time to grow into its valuation.
Sometimes it pays to pay up for a stock. This is one of those times.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.