In a Risky Market, Is This Stock a Good Bet?

DraftKings (NASDAQ:DKNG) may be trying to take the lead in the NFT and blockchain market by partnering with the NFL and other strong collaborators. In this segment from “The Virtual Opportunities Show,” recorded on Feb. 1, Motley Fool contributor Jose Najarro examines how the online sports betting company could use this new technology to its advantage. 

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Jose Najarro: This one has definitely taken quite a hit. Let me just share my quick slide. They do report earnings on February 18th. What’s that, two weeks, three weeks from now? Where are we? The first? It’s about 2 or 3 weeks from now. Analysts expect revenue to be somewhere around $444 million. That will represent a 38 percent year-over-year growth. They are expected to be still losing money when we take a look at earnings per share, and I just want to show the overall revenue trend that this company has seen, 60 percent most recent quarter, 320 percent, previous 253 and 146.

One thing to mention is this is a company that is focusing in the online sports betting, online casino. It’s still very small place compared to some of its peers. I do believe Penn is sitting in trailing 12 months, over $5 billion in revenue where DraftKings is sitting somewhere in the low 1 billion. Something to keep in mind.

I do want to share some recent news the company has seen. In the past few months numerous partnerships with casinos for retail sportsbook. I’ve mentioned DraftKings is mainly in the online sports betting, online casino. But sometimes there might be a casino that might not have the tech to go into the sports betting market into the online sports betting market, so DraftKings comes in and helps them move into that market. Usually just smaller no name-brand casinos. Obviously Penn, I think they have their own segment. I know MGM has MGM but there’s also other casinos that don’t have that money to invest to have these online sports betting so the they work with DraftKings.

November 17th, this one is pretty cool. They partnered up with Face Glam. If you’re not familiar with Face Glam, they are these big YouTube online content creators and they partner up with them. Face Glam, whenever they make a YouTube video or whenever they make some form of content, there’s going to be times when DraftKings is going to show up somewhere. They might have a flag of DraftKings somewhere in the back, but just some way to promote the platform. I’ll talk about it in a bit when we hit the NFT market.

But December 7th, DraftKings plan on making a gamified NFT collaboration game for the next NFL season of 2022. I think that’s pretty big news. I think Asit was mentioning earlier how sometimes in the NFT market, there’s a lot of probably counterfeits, a lot of fakes, but when you have some form of backing, for example, with DraftKings and then the DraftKings has partnerships with the NFL, that builds a little bit, I want to say of, maybe security. This is definitely an NFT I can probably focus on because there’s some names behind it, because the NFL agrees with this platform. I think that’s pretty big move.

I think this is one of the few casinos that is entering in the NFT market. Recently they announced an NFT marketplace, so you’re able to buy NFTs that are authenticated by some of these big sports players. I know Tom Brady today announced his retirement but earlier last year, DraftKings came out with a few Tom Brady NFTs. I think this is the great thing about DraftKings. I feel there’s always a market. There’s people that want to learn about NFTs, but they don’t really want to learn about how to go about opening an OpenSea account, how to get a digital wallet. What is the digital wallet? How do you protect this digital wallet? I think DraftKings grabs those users that want to get into the NFT market, but they want to enter it easily. Where they just have to have a DraftKings account. They’re moving there.

In January 6, they opened up mobile sports betting, opened up in New York, which is one of the biggest states. In January 28th, the mobile sportsbook launched in Louisiana and in January 20th, DraftKings offers about 1 million to responsible gaming programs. This is a heavily regulated market, so they obviously have to do stuff like this to make sure that hey, look, we’re also helping out those people who might have, who knows, gambling addictions so we’re also helping out the better goods to some extent.

The price movements, we can see DraftKings earlier today, it was sitting around $22 is definitely seen quite a pullback. Keeping my eyes on it right now, I just wanted to share my overall thoughts. I do own shares of DraftKings, but this is not one of my main positions. I like it at these levels, but I personally was first focusing on some of my bigger plays. Now that I kind of focused on them, I’m going to start looking at DraftKings a little bit more. Another thing, last earnings, they mentioned that OSB, that’s online sports betting, is only live in 29 percent of the United States populations. That’s why a lot of people are seeing huge growth in this. Even with New York and with Louisiana happening this quarter, I still believe this is going to be less than 45 percent. iGaming is only in 11 percent of the US population. I think that’s another thing to understand or differentiate, that online sports betting, if it’s allowed in one state, it doesn’t mean that iGaming, which is online casino, is allowed. There’s multiple growth revenues for DraftKings here.

Draftkings, I believe is trying to take the lead in the NFT and Blockchain market. Who knows it might not work out, but I do enjoy that leadership is trying to do that and they are doing it with strong partnerships. Having the OK with the NFL, working with some big players, I do believe that creates some form of strength behind it or builds at least a building platform. They’re also focusing on content creation and their applications more than just sports betting, it’s also more like a social platform. If you bet somewhere, you can share, hey, I bet it here, what are you guys doing? I do believe DraftKings is trying to bring that social gambling aspect to the online world.

Obviously, there’s plenty of risk for this company, high competition. There’s some numerous casinos. It’s a heavy regulated market. Who knows, maybe it got approved in New York today. But the way the world works, who knows what happens tomorrow? Valuation, a lot less now, but something to keep in mind, this is a little bit more expensive than some of its peers. It is an expensive market. This is a market where you need to offer players incentives to come join your application. I will give you a free, a $100 if you come bet here in DraftKings and then they have to keep incentives for players if they want to keep playing. It’s definitely, I want to say, a risky market to some extent, but I do enjoy the way DraftKings is going into that NFT market and how they’re still pretty strong. There’s so much growth in the online sports betting.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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