In early afternoon trading, DraftKings (NASDAQ:DKNG) stock is surging 10% to $21. Among the factors likely pushing the shares higher today are the company’s decision, announced today, to look to enter Puerto Rico, excitement about the upcoming Major League Baseball(MLB) season, and the market’s strength. Although I believe that DKNG stock could very well prove to be profitable for traders in the coming days and weeks, I remain bearish on its longer-term outlook, largely due to the intense competition that the company is facing.
DraftKings will attempt to launch its “online and retail sports betting” offerings in Puerto Rico, DraftKings and the Mashantucket Pequot Tribal Nation announced today. Mashantucket Pequot owns a casino in San Juan, Puerto Rico, and DraftKings intends to launch sports betting at the site ” in the coming weeks.” As of 2020, Puerto Rico had a population of 3.2 million, about 1 million below Oregon’s population in 2019.
Meanwhile, labor strife between owners and players delayed the launch of MLB’s 2022 regular season, but this year’s games are slated to begin on Thursday, April 7. DraftKings “is an official betting partner of MLB,” and MLB is considered one of the four major professional sports leagues in the U.S. (the others are the National Football League, the National Basketball Association, and the National Hockey League). Additionally, with 162 regular season games, MLB will give DraftKings’ customers plenty of contests on which to wager.
Finally, the stock market is rallying today, with investors becoming more enthused about growth names. Part of the reason for the rally is that oil prices have been stable recently and are trading towards the low end of their recent range. And indeed, lower oil prices will give Americans more money to spend on sports betting.
As I noted in a March 7 column on DKNG stock, however, DraftKings has to “face very tough competition that’s severely undermining its profitability.” Specifically, the company must spend a tremendous amount of money on ads to keep up with its wealthier foes that own many brick-and-mortar casinos and have access to data on thousands of longtime high-rolling gambling enthusiasts. As a result, DraftKing’s losses have surged, and that trend should continue for the foreseeable future. Therefore, those looking for a short-term trade can go long DKNG stock, but I do not view the name as a good investment.
On the date of publication, Larry Ramer did not hold (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.