DraftKings Inc. (DKNG) stock has been on a winning streak in recent weeks, significantly outperforming the Zacks Gaming industry and the S&P 500. The company’s impressive performance can be attributed to a combination of factors, including a surge in new online sportsbook and iGaming customers, improved product offerings, and a positive outlook for the industry.
During the past month, DKNG stock gained a remarkable 13.6%, outpacing the industry’s 6.7% increase and the S&P 500’s 2.1% gain. This strong performance has pushed DKNG’s stock price to $39.20, placing it above its 52-week low of $25.73, though still below its 52-week high of $49.57.
DraftKings’ recent success has also outshined other major players in the industry, such as Flutter Entertainment plc (FLUT), Caesars Entertainment, Inc. (CZR), and MGM Resorts International (MGM), whose shares rose by 11.7%, 10.9%, and 4%, respectively, during the same period.
Technical indicators further suggest continued strong performance for DKNG. The stock’s trading above its 50-day moving averages, a positive signal for upward momentum and price stability. This technical strength underscores the positive market sentiment and confidence in DKNG’s financial health and prospects.
Reasons Behind DKNG’s Upsurge
DraftKings’ recent surge in stock price is largely driven by Flutter Entertainment’s optimistic guidance. Both companies are major players in the online sports betting and iGaming landscape, and Flutter’s positive outlook has ignited enthusiasm across the sector. Investors are rallying behind DraftKings, fueled by confidence in the industry’s growth trajectory.
During the second quarter of 2024, DraftKings witnessed a significant 80% year-over-year increase in new online sportsbook and iGaming customers. This impressive growth occurred despite the absence of any state launches during the period, highlighting the company’s strong market appeal. DraftKings expects this robust pace of customer acquisition to continue throughout the second half of the year and potentially extend further, suggesting that the U.S. online gaming market could be even larger than initially anticipated.
Further bolstering DraftKings’ position is a decrease in customer acquisition costs. The company is also leveraging new features for its sportsbook, such as in-house player props and broader progressive parlays, to attract and retain customers. The iGaming segment is also expanding, with more new games being released compared to last year.
DraftKings projects to achieve between $900 million and $1 billion in adjusted EBITDA in fiscal 2025, demonstrating confidence in future profitability. With its aggressive expansion, product diversification, and focus on responsible gaming, DraftKings is poised to capitalize on the surging demand for online gambling and sports betting, solidifying its position as a market leader in the rapidly evolving industry.
DraftKings’ Product Differentiation
DraftKings’ product offering stands out by continually investing in new features and functionality for its Sportsbook and iGaming platforms. In its Sportsbook, the company recently introduced in-house player prop bets for major leagues like the NFL, NBA, MLB, and NHL, along with college football, basketball, and tennis. DraftKings also expanded its progressive parlays to include spread and total wagers. Looking ahead, the company plans to launch a bet-and-watch feature that will integrate NFL streaming, further enhancing the user experience.
Challenges Ahead
Despite its impressive performance and growth potential, DraftKings faces challenges from rising marketing and promotional costs, particularly after the acquisition of Jackpocket, which could impact short-term profitability. Increased customer acquisition, while beneficial in the long term, has led to higher marketing and promotional costs, putting pressure on adjusted EBITDA in the short term.
While long-term growth prospects remain solid, the near-term financial pressures suggest that current investors should hold onto their stock. However, potential new buyers may want to wait due to near-term cost pressures and the company’s premium valuation. Currently, DKNG carries a Zacks Rank #3 (Hold).
