DKNG Details

DKNG Enters a Multi- Channel Deal:  Headquartered in Boston and established in 2012, DraftKings Inc. (NASDAQ: DKNG) is engaged in digital sports, entertainment, and gaming. On December 7, 2020, DKNG and the Mashantucket Pequot Tribal Nation inked a multi-channel deal, to provide access for online sports betting in advance of the expected introduction of legal sports betting in Connecticut. With this strategic alliance, DraftKings will be an exclusive Daily Fantasy Sports Partner of Foxwoods Resort Casino. The deal is subject to required legislative and regulatory authorizations.

3QFY20 Key Financial Highlights: During the quarter, the company reported revenues of $133 million, which skyrocketed 98% year over year from the year-ago figure of $67 million. Notably, revenues increased 42% year over year, after taking effect of the business combination with SBTech (Global) Limited and Diamond Eagle Acquisition Corp. Moreover, monthly unique payers during the quarter went up by 64% to over 1 million. This depicted the efficacy of the company’s data-driven sales and marketing approach. Due to limited sports activity in July, Average Revenue Per Monthly Unique Payer (“ARPMUP”) reached $34. However, higher engagement with BKNG’s iGaming product offering was key positive, during the quarter. In 3QFY20, sales and marketing expenses on a GAAP basis reached $203 million, owing to being live in seven more states. Further, pent up demand and coronavirus led stay at home culture aided the company to witness robust returns on its marketing spend. 

Key Developments: During the quarter, the company expanded its multi-year deal with the PGA TOUR, Chicago Cubs, ESPN, and New York Giants. It also inked an agreement with the Colorado Rockies to be named both the franchise’s Official Daily Sports Partner along with the franchise’s first Official Sports Betting Partner. Draftkings’ partner base is likely to increase its reach and drive customer engagement on its platform. These relationships augur well with the company’s objective to gain brand experience and secure market share in the U.S. sports betting market.

Outlook: The company upped its FY20 pro-forma revenue guidance to be in the ambit of $540 to $560 million, as compared to the previous expectation of $500 to $540 million. The revised guidance depicts year-over-year growth of 25% to 30% in FY20. The company also expects 2021 revenue outlook to be in the range of $750 million to $850 million, depicting a rise of 45% on pcp, based on the mid-points of the guided range.

Stock Recommendation: The stock of DKNG closed at $50.85 with a market capitalization of ~$19.9 billion. On a technical analysis front, the stock has a support level of ~$45.6 and a resistance level of ~$53.9. The company’s top line is expected to be positively impacted by new state launches and growing customer base in existing states. Moreover, growing demand for online gambling on digital platforms like online poker, casino games and lottery is expected to drive revenues. Current ratio of the company stood at 5.37x in June’FY20, higher than the industry median of 1.31x, depicting decent liquidity position. Considering, increasing top line in 3QFY20, encouraging FY20 and FY21 outlook, key strategic alliance, new product launches, higher monthly unique payers as well as the stock price movement in the past one-month, we recommend a “Buy” rating on the stock at the closing price of $50.85, up by 6.09% on 8 December 2020.

DKNG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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