2020 may not have been a great year for most of us, but it has been a great year for sports betting company DraftKings (NASDAQ:DKNG). With states legalizing online sports betting, there is a digital gold rush in the U.S. DKNG stock has shown outstanding performance in 2020 as a result. In fact, the stock is up 368.63% year to date. DraftKings has pleased shareholders who purchased the stock earlier in the year.
But now some wonder can its success continue?
In a recent breakthrough last week, Canada’s Department of Justice decriminalized single-event sports betting and thus, unlocked billions of dollars in potential revenue. DKNG stock rose more than 4% after this announcement. This legislation would allow provinces in Canada to issue licenses to companies that will accept bets on sporting events, excluding horse racing. It is estimated that Canadians spend about 14 billion CAD each year on single-event betting through illegal bookies.
This shows huge potential for DraftKings to expand and build a strong presence in Canada.
Stable Financials
But the bullish case for DraftKings doesn’t end with that recent news. The company recently forecast full-year revenue of $540 million-$560 million, beating analysts’ expectations. Its 2021 revenue outlook has also surpassed expectations. The Boston-based company forecasted $750 million to $850 million for the coming year.
The novel coronavirus pandemic had put a halt on sports earlier in the year, but the resumption of major sports like NHL, NBA and MLB has generated high user interest. According to DKNG’s analyst presentation, the revenue of the company is expected to grow at a CAGR of 31% from $432 million in 2019 to $700 million by 2021.
Many analysts are also bullish on DraftKings. Emily Flippen and Motley Fool contributor Asit Sharma point out in a recent breakdown of DraftKings that the sports-betting giant has a strong balance sheet with “a 44% year-over-year increase in revenue.” Furthermore, due to the pandemic, the company has managed to “widen the user base and meet their needs.” Additionally, the company “doesn’t have any appreciable long-term debt” and has adequate working capital. It has more than tripled the marketing spend which stands at $203 million for the quarter. DraftKings also managed to enter additional states this year, which justifies the increased marketing spend. DraftKings also enjoys a competitive advantage in terms of scale and transaction volume.
All of these facts bolster the long-term case for DKNG stock in the months ahead.
The Sky’s the Limit for DKNG Stock
DraftKings is addressing a multi-billion dollar global opportunity in fantasy sports betting. It “ranks first or second in terms of market share” in the states where it provides services of online betting. The company says it is forecasting revenue growth of over 40%. This is considering only the 10 states Daily Fantasy Sports (DFS) exists in currently. This raises expectations with regard to the potential of the company as it grows into more states. As more states legalize sports betting, there are chances for potential upside.
DraftKings is a leader in online fantasy sports games. There are many reasons to believe that the company will ride multiple tailwinds in the sector in the coming years. The online sports gambling market is expected to cross $127 billion in terms of revenue by 2027. As such, DraftKings has opportunities to grow on an international front and it will benefit from the resumption of a fuller sports calendar.
Adding to the bullish case for DKNG stock, the company has the potential to capitalize on the legalization of sports betting across the U.S. The results on Election Day 2020 show that it is likely to benefit from the regulated sports wagering in Louisiana and Maryland. With more states opening to sports betting, the company will have huge potential to grow.
As more states hunt down additional sources of revenue, there is plenty of opportunity in the internet casino business. The company has spent the year building partnerships and it also got an extension of the multi-year deal to remain the official daily fantasy sports partner of Major League Baseball. It has moved into casino gaming with the iGaming application. It is a part of a partnership with Hollywood Casino at Penn National Gaming’s (NASDAQ:PENN) Penn National Race Course. Building partnerships is an efficient way to widen the user base and increase recurring revenue. It aims to cash in on the millions of people who love sports and gamble.
Ultimately, DraftKings will reap the rewards of these partnerships in the future. As such, betting on DKNG stock has the potential to double your money. The fun’s just starting.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article.
