It’s been a couple of weeks since DraftKings (NASDAQ:DKNG) reported Q4 2021 results that caused DKNG stock to plunge almost 22% in a single day of trading.
If you were smart, you listened to CEO Jason Robins and bought some of the sports betting company’s shares.
The day before DraftKings announced its earnings, DKNG closed on Feb. 17 at $22.06. So if you bought at the low of $16.56 on Feb. 22, you’re still sitting on a tidy profit as the company makes its way back up. It trades today at about $21.
While it takes nerves of steel to buy stock in this kind of market, the profits during times of volatility can be enormous. Here’s why.
A Plunging DKNG Stock
Jason Robins appeared on CNBC’s Squawk on the Street on Feb. 18, a few hours after it reported its fourth-quarter results.
“‘It’s a wild market right now. I think what we’re doing has been very consistent since day one,” Robins said of his plunging stock while appearing on CNBC’s Squawk on the Street. “I think the model’s working, and we’ll play the long game here.”
He added that the metrics the company has added public should help restore confidence, but that DraftKings would just keep doing its thing.
It must be an awful feeling when you’re a CEO of a public company and you can’t do anything about a falling share price. Unfortunately, investors have decided — rightly or wrongly — that companies like DraftKings are paying too much for their customers.
However, as Robins stated in his CNBC interview, it hits every target it has put out to investors in the past. The company can’t help it if analysts get overly ambitious about their projections and estimates.
Now that it’s providing guidance for its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) — it expects an adjusted EBITDA loss of $875 million at the midpoint — Robins is confident it will meet this target as it has with revenue and its other financial metrics.
It Would Have Made a Profit
Its Q4 2021 results highlighted the fact that it would have generated an adjusted EBITDA profit in Q4 2022 if it hadn’t launched in any more states in 2022.
With mobile sports betting in just 17 states, that would make absolutely no business sense, though. So if it doesn’t plant a flag in the remaining 33 states and territories as they go live, it’s giving away business.
The company also expects to have a positive contribution profit in fiscal 2022 — revenue less cost of revenue and direct advertising — in all the states it currently operates.
Is it GAAP profitability? No, it’s not.
Once customers get hooked on DraftKings’ online betting, I find it hard to believe that they’re going to stop placing bets. As the company stated in its results, its Q4 2021 average revenue per monthly unique payers (ARPMUP) was $77, 19% higher than in Q4 2020. For all of 2021, it was $67, up from $51 in 2020 and $39 in 2019.
Things are going in the right direction. The profits will take care of themselves by focusing on providing the best user and customer experience. There’s a two-year lead time to making money in a given state. That’s not something you can take a pass on.
As the saying goes, it is what it is.
The Bottom Line
The markets are indeed crazy at the moment. Inflation, rising interest rates, Covid-19, and last but not least, Russia’s invasion of Ukraine will hurt the stock markets.
If you think the markets shouldn’t be volatile with all of this in the world, you are mistaken.
If you’re an aggressive investor, Jason Robins makes a lot of sense. It’s a wild market right now. Play to your strengths. Buy when others are fearful.
Is DKNG a risk-free investment? Hell no. But if you’ve got nerves of steel, you can make a lot of money off DraftKings.
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.