DraftKings (NASDAQ:DKNG) may have picked the wrong day to deliver a stellar earnings report. The online sports betting company delivered a sound beat on both the top and bottom lines before the market opened.
And after a sluggish start due to the broader market, investors seem to be in a buying mood, the stock is up just a little over 5% in late morning trading although it’s still down from its pre-market surge.
What’s even more interesting is that the earnings report from DraftKings seems to be a tide that’s rising other boats in the sector. Penn National Gaming (NASDAQ:PENN) is up over 4% and MGM International (NYSE:MGM) is up about the same as DKNG at around 3%. Both companies reported earnings in early February and neither report was anywhere close to the results of DraftKings.
This is why I believe this is just a case of some investors being hesitant to jump in buying anything. Or maybe the institutional money is flowing into ETFs to hedge their bets. But if you’re looking for one of these stocks to wager on, I think DraftKings has a compelling argument.
What More Do Investors Need to See?
Yes, DraftKings is not profitable and may not be profitable in the next three years. But the company delivered negative earnings per share of 24 cents which was over 50% higher than the negative EPS of 57 cents that was forecast. That number was also a 75% increase from the prior quarter.
And in terms of revenue DraftKings delivered $322 million when analysts had been forecasting $230.6 million. The revenue numbers was supported by a 44% growth in average monthly unique payers to 1.5 million and a 55% growth in revenue per average monthly unique payer to $65.
And management didn’t shy away from seeing these numbers as the positive side they were. DraftKings raised its revenue guidance for 2021 to a range from $900 million to $1 billion. This was from the company’s prior estimate of $750 million to $850 million.
Sports Betting Is Expanding
Many states are feeling the strain of the pandemic on their balance sheets. As the November election showed, some are turning to legalizing sports betting as a way to fill that gap. DraftKings is currently the only publicly traded pure play on sports betting. The company doesn’t have a brick-and-mortar component, such as a network of casinos.
While some may say that limits the company’s revenue stream, it also means the company is more isolated from any disruption that may occur if the re-opening of the country doesn’t happen as smoothly as hoped.
And Google (NASDAQ:GOOGL) recently announced it would allow sports betting apps in their Play Store beginning March 1, 2021.
There’s Room on the ARK for DraftKings
In other news about DraftKings, Cathie Wood who is the CEO and Chief Investment Officer of ARK Investment Management has placed a $33.89 million bet on the company. Her Innovation ETF purchased 620,330 shares of the company. Wood has been making news lately for her bullish positions in Bitcoin (BTC) as well as Tesla (NASDAQ:TSLA). The actively managed fund that she runs has been dragged down by the slump in the tech sector. However,
Don’t Be a Prisoner Of the Moment
By some metrics, DKNG stock looks overvalued. And it’s fair to ask if the company can deliver a nearly $100 million beat on revenue in future quarters. However with more states likely to legalize online sports betting in 2021 and beyond, this is a time to go long on one of the leading names in the sector.
Not surprisingly, DraftKings has drawn a lot of attention from analysts who currently have the stock as a consensus buy. The consensus price target currently suggests minimal upside, but I expect that to change as analysts digest this earnings report.
This is a company that is positioned in a sector that is only in the early innings of what is expected to be massive growth. I expect shares to blow past their 52-week high soon and you’ll want to be on that train before it leaves the station.
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