Election Offers Surprising Catalysts for DraftKings

The presidential election finally happened. While the results aren’t quite finalized, we’re already seeing a clear impact for many companies. For DraftKings (NASDAQ:DKNG), and investors in DraftKings stock, the election offered several encouraging details.

DraftKings (DKNG) logo on a phone
Source: Lori Butcher / Shutterstock.com

First, voters in three states – Louisiana, South Dakota, and Maryland – approved measures that will bring sports betting to their states. Gradually, the number of states permitting DraftKings’ operations continues to rise.

Second, the election also highlighted another potentially massive market for DraftKings gaming operations in the future. That said, DraftKings stock still faces challenges, namely, tons of competition.

It’s far from clear which gaming company will end up ultimately dominating the field. It’s certainly possible that a rival like Dave Portnoy-powered Penn National Gaming (NASDAQ:PENN) could end up winning the match. However, it looks like DraftKings is on a winning trajectory heading into its next earnings report on November 13.

Upcoming Earnings Should Be Eye-Catching

DraftKings has not had a full quarterly report since sports really got going again following the initial wave of the pandemic. DraftKings’ last quarterly results came out in August, before the National Football League kicked off its season, for example. Thus, Q2 revenues came in at $70 million. Even that figure wasn’t too bad given the near complete lack of live sports this summer.

Now, however, the NFL is running at full steam. Other big events such as the National Basketball Association playoffs happened recently as well. So this should be a strong quarter.

This means that DraftKings should report record gaming results when it publishes earnings later in November. Management guided to at least $400 million in gaming revenues for Q3. And given how successful sports betting has been so far this fall, don’t be surprised if they top guidance handily.

Politics Could Be Fruitful As Well

One interesting side note out of the recent presidential election is the interest in betting on it. This came to the forefront with DraftKings because the site offered a free-to-play pool predicting who would end up winning. As it turns out, the vast majority of DraftKings’ more than 350,000 participants predicted that President Donald Trump would be re-elected. As they say, the house always wins in the end; DraftKings would have cleaned up taking all those pro-Trump bets given the apparent Biden victory, at least as of this writing.

While this election action was a free-to-play set-up, it’s not hard to imagine a future where DraftKings can take real money on elections. There is already a U.S. legally-approved site, PredictIt, that allows real money wagering (with small position size limits) on U.S. elections. It’s not hard to see a full-fledged political gaming arena opening in coming years, with DraftKings set to have a leading position given its already large and engaged user base from sports.

The demand is clearly there. Overseas, on Betfair, through October 30, that site had received more than $300 million in bets on the U.S. presidential election. That made the election bigger than the Super Bowl or any other individual high-interest event for Betfair. This gives a sense of the potential for political action once it is fully legalized in the U.S.

And it’s not just presidential elections either; there can be robust markets for events such as impeachments, Supreme Court nominees, and vice-presidential candidate selections, among other things. The past week has been a crazy one. And, in the future, DraftKings should be able to profit off that passion by offering wagering as things unfold in real-time.

DraftKings Stock Verdict

DraftKings stock still looks extremely expensive on an price-to-earnings or price-to-sales basis. There’s no denying that fact. Oppenheimer, in a recent bullish call on DKNG stock, used 2026 valuation metrics to justify its price target. Normally I’d urge caution, and that may still be warranted in this case given the sorts of optimism you have to have to accept current bullish targets for DKNG stock.

However, the potential market for the company is simply humongous. Online betting is going to be a massive industry as long as the regulatory winds continue to be favorable. And, unlike physical casinos, there is little location-specific edge online. That is to say, if DraftKings keeps succeeding in marketing, it can dominate the entire the U.S. market.

And not just in sports either, with its recent publicity around the presidential election, DraftKings opened a lot of eyes about the potential for friendly wagering about a much broader range of popular events. DraftKings stock has pulled back sharply in recent weeks. Traders that want entry into the gaming space should take advantage of this dip.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

Article printed from InvestorPlace Media, https://investorplace.com/2020/11/election-offers-surprising-catalysts-for-draftkings-stock/.

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