I recently wrote about some of the good things happening to Draftkings (NASDAQ:DKNG) that I thought would drive DKNG stock higher.
This, however, was before the sports betting and fantasy sports platform announced healthy second-quarter earnings as well as the news that it was buying Golden Nugget Online Gaming (NASDAQ:GNOG) for $1.56 billion in stock.
In less than a week, Draftkings has delivered multiple pieces of good news. And yet, its share price is up just 9.5% for the past one month. I say this because, if an old stodgy company like AT&T (NYSE:T) delivered multiple bits of positive news to the markets, T stock would be going to the moon.
Whether investors choose to listen, DKNG shareholders ought to be pleased with the way CEO and founder Jason Robins is driving the Draftkings bus. As CEOs go, Robins continues to surprise investors. Here’s why that’s a good thing.
DKNG Stock and Golden Nugget Online Gaming
According to CNBC, “Golden Nugget Online shareholders will receive 0.356 DraftKings shares” in return for every share they own in GNOG stock. That’s a 53% premium to Golden Nugget’s closing price the day before the announcement.
Unless you’re omniscient, I doubt you had an inkling that this deal was in the works. I know I sure didn’t.
Tilman Fertitta — Golden Nugget Online’s CEO — owns 47% of GNOG. He will join Draftkings’ board and will keep his stock for at least a year.
Additionally, according to Page 12 of the Draftkings merger presentation, the company will have 460.69 million shares outstanding after the deal is completed. Based on 80.15 million outstanding GNOG shares (28.53 million shares issued divided by 0.356), Fertitta will own about 3% of DKNG.
And for Draftkings, the company gains five million customers it can plug into its ecosystem. So, it’s bound to deliver more reliable results from the iGaming side of its business. Robins noted the following during the conference call:
“We definitely feel in the iGaming segment that we do better with people who are sports fans that we can cross-sell, and we’ve been working hard to try to extend our brand and extend our reach into the non-sports fan iGaming audience.”
Draftkings projects that it will find $300 million in annual savings from the deal. In addition, Fertitta will still be able to plug his hospitality, brick-and-mortar casinos and Houston Rockets enterprises.
Of course, the potential lawsuits have already started to appear, suggesting that the deal has “significant conflicts of interest.” That said, although I’ve been skeptical of Fertitta in the past, I think he sees a major opportunity here — one that will get GNOG into the hands of a company that understands the use of tech in online gaming and sports betting.
Sue all you want, but GNOG shareholders are getting a reasonable price for their shares.
The Pathway to Profits
Robins appeared on Yahoo Finance Live on Aug. 6. Specifically, he discussed the company’s latest earnings results, which included a 300% increase in revenue from Q2 2020. As a result, Draftkings upped its revenue for 2021 to between $1.21 billion and $1.29 billion — a huge boon for DKNG stock.
When asked about profits, the CEO also said that it takes about two to three years in each new state to turn a profit. New Jersey is now profitable and the company has other states hitting their two-year mark at the end of the year. So, those markets should start generating profits as well.
As for the user engagement, reopenings don’t seem to have affected the company just yet. In Q2, DKNG saw monthly unique payers increase by 281% over last year. If that’s a dud, I’ll take three, please.
Lastly, Robins made a good point about the challenge his company faces in keeping users happy.
“We’re an entertainment product […] so we view it as not just competing against others in our direct industry, but really anywhere that somebody can spend their time or discretionary entertainment spend,” Robins said.
The Bottom Line on DKNG Stock
All in all, you can be sure about one thing when it comes to DKNG stock: if ongoing innovation requires Draftkings to lose money for a while longer, Robins won’t have any problem keeping the tap flowing on innovation spending.
Deals like the one he just did with Golden Nugget Online will ensure profits do happen.
But not just yet. In the meantime, expect Draftkings and Robins to continue to surprise investors — in a good way.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.
