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Can Future Growth Outweigh Current Losses? By TipRanks

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© Reuters. DraftKings Stock – Can future growth outweigh current losses?

DraftKings stock (NASDAQ:) is neutral because of its high growth rate and bullish Wall Street consensus. However, its current losses are heavy.

DraftKings, an American digital fantasy and gaming platform with multiple channels, is based in the United States. DraftKings provides daily fantasy games and iGaming to users. It also develops and maintains software for casino gaming platforms.

DraftKings has business-to-consumer and business-to-business segments, out of which it generates the most revenue from the business-to-consumer segment in the U.S. (See DKNG stock charts on TipRanks)

Strengths

DraftKings is live with online sports betting in 12 states that represent 25% of the population of the US. The company is also live with iGaming in four states that consist of 10% of the country’s population.

In August, DraftKings signed an agreement with Genius Sports to use its company’s content, sportsbook data, and user engagement solutions. This agreement allows DraftKings to access official data as well as video feeds of over 170,000 events annually, which includes NFL products.

The company also has plans to open its own sports bars, and expand its contract with MLB in order to live stream games on DraftKing’s app. In August, the company signed a deal with Tom Brady’s NFT platform, Autograph.

Recent Results

In its latest quarterly results, DraftKings reported an increase of 281% in monthly unique payers on a year-over-year basis. DraftKings reported that the average monthly revenue of unique payers rose to $80. Total revenue in Q2 was $298 million. This is a 297% increase year-over–year pro forma.

Moreover, excluding the pro forma effect, the company’s revenue increased 320% on a year-over-year basis. DraftKings’ $298 million revenue in the second quarter was driven by strong engagement in its major product offerings.

Once it receives approval from another state, DraftKings expects to move its in-house online betting technology.

The company suffered a loss of $305.5million in its second quarter due to high marketing and operations expenses.

Valuation Metrics

DraftKings stock does not look particularly cheap here, as it continues to run up heavy losses. The company will continue to suffer heavy losses even though it is forecasting a 109.4% increase in revenue year-over year in 2021 and 38.7% in revenue year-over year in 2022.

Therefore, investments in DraftKings are based on the expectation that they will become profitable.

Wall Street’s Take

From Wall Street analysts, DraftKings earns a Strong Buy analyst consensus, based on 12 Buy ratings, and four Hold ratings assigned in the past three months. DKNG’s average price target is $72.43, which puts its upside potential at 37%.

Summary and Conclusions

DraftKings is enjoying rapid growth, and has very strong support from Wall Street analysts. It is a risky bet that DraftKings will succeed long-term, however it has been accumulating heavy losses.

Disclosure: Samuel Smith didn’t hold any positions in the securities discussed in this article at the time it was published.

Disclaimer: This article is solely the author’s opinion and does not reflect the opinions of TipRanks and its affiliates. It should only be used for informational purposes. TipRanks does not warrant the accuracy, reliability or completeness of this information. This article is not intended to be interpreted as an offer or recommendation for the purchase or sale of securities. This article is not intended to provide advice on legal, professional investment or financial matters. TipRanks or its affiliates are not responsible for the contents of this article. Any action you take based on the information is your responsibility. TipRanks and its affiliates do not endorse or recommend this link. Performance in the past is no guarantee of future performance, price or results.

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