DraftKings stock has been volatile this year. After an extremely successful 2020, many investors believe that the company can maintain growth. This idea brings up an important question: how high can DraftKings stock go? Has it already reached its tipping point, or does it still have room to move upward?
DraftKings excels at three things: sports betting, casino games, and fantasy sports contests.
Sports Betting: Sportsbook
The company offers a secure sports betting platform that people can access online and via mobile apps through its Sportsbook service.
In May 2018, the Supreme Court ruled against the Professional and Amateur Sports Protection Act of 1992, which essentially made sports betting illegal outside of a few locations.
DraftKings became the first company to take advantage of the change in law, launching Sportsbook just three months later, on August 1, 2018.
As of 2021, Sportsbook offers thousands of sports betting opportunities per day. Betting options include events in the United States and many other countries. Members can place in-game bets, future bets, and other options.
Casino Games: Casino
DraftKings Casino has more than 300 games operating 24 hours a day, 365 days a year. Players can choose live dealer games or automated games.
Daily Fantasy Sports: Fantasy
DraftKings earned its reputation as an industry leader in fantasy sports. DraftKings doesn’t require long-term commitments from players. Instead of signing up for an entire season, people can play for one day or a week at a time.
DraftKings lets members create fantasy teams in at least 13 sports, including:
- CFL (Canadian Football League)
Members can compete against people with similar levels of skill. As novice players advance, they can join competitions against more experienced members.
Are DraftKings Revenues Rising?
DraftKings has shown a significant increase in its revenues over 2020. In 2019, DraftKings reportedly earned $131 million during the last quarter. During the final quarter of 2020, the company increased its revenues to $322 million, a 146% increase.
DraftKings’ revenues also increased throughout the entire year. In 2019, the company brought in $432 million. It added 49% to that in 2020, resulting in a total of $644 million.
It’s important to recognize that DraftKings’ growing revenues haven’t made the popular company profitable. It will likely take at least three years for DraftKings to cover all of its expenses and start turning a profit. Whether that happens largely depends on its ability to reach new markets, including states that currently ban online betting.
Over the last few years, DraftKings has successfully encouraged members to spend more money on their platform.
Relatively small increases from individuals, however, probably will not get the company where it needs to go, financially. Its long-term success most likely relies on its ability to recruit more players from new territories.
Will DraftKings Earnings Go Up?
Given DraftKings performance over the last couple of years, some analysts believe that the companies earnings will go up.
When comparing last year’s performance to the expected performance in 2021, it looks like DraftKings earning will fall slightly during the first quarter. The next three quarters look impressive, though, as more sporting events will drive members to their accounts to create fantasy teams and place bets.
Is DraftKings Stock Undervalued?
Currently, the market seems uncertain about how to value DraftKings.
A discounted cash flow forecast analysis reveals a fair market value of $71.74 per share, suggesting that the company is undervalued.
It explains why Cathie Wood at ARK Invest has accumulated shares over the past year. The hurdle rate for ARK to make an investing decision is widely believed to be 15% annually. That’s a signal of what the potential yearly gains could be.
Most analysts recommend buying the stock while its sits below its intrinsic value. Very few analysts would recommend selling the stock at this time.
Nevertheless, there are many variables that could influence the company’s performance over the next year. If DKNG share price dips below $50, it will likely be an opportunity to seize a deal.
Risks To Buying DraftKings Stock
There are a couple of risks that investors should consider before buying DraftKings stock. Not surprisingly, the Covid-19 pandemic could have influenced the company’s 2020 success. With many people stuck at home with few entertainment options, online betting looked like a good option.
Government stimulus checks might have also played a role in 2020s increased revenues. While most people used their stimulus money on necessities, many found themselves working from home with extra money to spend—which is the very idea behind issuing stimulus checks.
Will members keep using DraftKings as much in 2021 after getting vaccinated and returning to a more normal version of life that might include live entertainment? Some investors believe that new betting habits will stick with players. Now that they have learned to enjoy playing, they will not stop. Others think that the gradual return to normalcy will encourage people to drop their pandemic habits and resume their pre-pandemic lifestyles.
More concerning for DraftKings is the competitive threat from upstarts locking in partnerships with major sports leagues first. This works in reverse too. It’s challenging for any competitor to supplant DraftKings from the UFC and other major franchises now that the partnerships have been contractually agreed.
Is DraftKings Stock Price Forecast To Rise?
How high can DraftKings stock go? According to a DCF analysis, DKNG share price can reach as high as $71.74 per share.
Near term, whether the stock moves up or down will largely depend on revenues from 2021 first and second quarters, as well as any new partnerships announced. For example, after its partnership with the UFC, DraftKings was essentially promoted before and after each and every fight on each card. This kind of publicity is likely valued at much higher than the price management paid to forge the deal.
If DraftKings shows that it can grow beyond expectations, shares could climb above $80.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.