More Swiftonomics? DraftKings (DKNG) Returns to Two-Year High
by Nicholas Alan Clayton on 2023-11-20 at 11:03am

Plenty of stocks are rebounding this month as the market broadly rallies on signs that the age of rate hikes is ending, but DraftKings (NASDAQ:DKNG) is on an uncommonly sharp trajectory among recent de-SPACs.

The digital gaming and betting platform, which combined with Diamond Eagle in April 2020, opened 2023 trading at $11.63 – nearly a three-year low. But, it closed Friday at $38.37, above its two-year high and is up about +40% in the month of November.

Some of this enthusiasm could be considered seasonal as DraftKings typically has had by far its best quarters in the fall when betting on NFL games is in full swing.

The 2023 NFL season has gained extra cross-channel oomph with pop singer Taylor Swift expressing her sudden fandom in the league, and her hurricane-like economic effects seem to generate billions on every landmass she drifts through. But, DraftKings mostly has itself to congratulate for its winnings.

It announced November 2 that it generated $790 million in revenue in the third quarter and raised its full-year guidance to a midpoint of $3.69 billion, which is a billion more than the guidance it shot for as the year began. What is perhaps surprising about the market’s reaction to this news is that all of this growth has yet to come with significant profits.

DraftKings has been burning cash since listing in its to attempt to be a first mover and take advantage of jurisdictions in the US where online gambling has become newly legalized.

That’s sensible logic, but it is also not unlike some of the growth-based strategies that other tech companies and EV makers have taken on through the past two years and gotten hammered for it by a cash-hungry market.

In DraftKings’ case, it lost -$153 million on an EBITDA basis in the third quarter and expects to finish full year 2023 with a -$95 million to -$115 million EBITDA loss after a lucrative fourth quarter of football padding the books. If that trajectory continues, it believes it can cross into profitability in 2024 with $350 million to $450 million in positive EBITDA in 2024.

There are a few different explanations for why the market has been more enthusiastic for DraftKings than its growth-company de-SPAC peers. Retail popularity can’t be ignored, but it also appears the market is confident that DraftKings’ particular strategy is working.

What could be even more positive for those peers is if DraftKings could prove to be one of the first examples that the harshness of the investment climate towards pre-profitability companies is waning.

After all, those DraftKing’s profits are still at least a few quarters a way and its top line revenue would be expected to dip once again after the Super Bowl. But, if the market can be patient enough for online gambling, that bodes well for any number of de-SPACs.

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