2. DraftKings Inc. (NASDAQ:DKNG)
Number of Hedge Fund Holders: 37
On May 22, analysts at UBS upgraded DraftKings Inc. (NASDAQ:DKNG) from Neutral to Buy while also raising their price target on the stock from $19 to $30.
DraftKings Inc. (NASDAQ:DKNG) seems to have begun dominating “the online sports book industry overnight,” according to Cramer. He believes that the company is “about to explode” in light of its continued success.
There were 37 hedge funds long DraftKings Inc. (NASDAQ:DKNG) in the first quarter. Their total stake value was $1.1 billion.
In the first quarter, DraftKings Inc. (NASDAQ:DKNG) generated revenues of $769.65 million, up by 84.57% year-over-year.
DraftKings Inc. (NASDAQ:DKNG) was mentioned in Baron Funds’ first-quarter 2023 investor letter:
“We re-initiated a position in former Fund holding DraftKings Inc. (NASDAQ:DKNG), a leading online sportsbook, digital casino, and daily fantasy sports operator. DraftKings’ mobile applications offer consumers the ability to wager on a wide variety of sporting events and play hundreds of real-money casino games. The company has spent the past three years building a proprietary technology stack that improves the customer experience and delivers best-in-class breadth of bet types (such as parlays, same-game parlays, and player props). State-level online sports betting (OSB) and iCasino legalization, along with a multi-year consumer adoption timeline in active states, has supported a 90% revenue growth rate for DraftKings since 2020. The opportunity for OSB legalization remains significant, with under 50% of the U.S. population currently having legal mobile sports betting. We expect 65% to 80% of the population will eventually have access to OSB. ICasino is currently legal in just seven states representing roughly 13% of the population. ICasino product adoption in legalized states has been robust, with the average user spending twice as much as a sports bettor. While the pace of legalization for iCasino has been slower, we believe additional states will pass regulation in the coming years.
As U.S. states began to legalize sports betting, the DraftKings management team moved quickly to build widespread brand awareness. DraftKings is the #2 operator in both OSB and iCasino by a wide margin, and has demonstrated improving market share trends across almost all states. When a new state legalizes sports betting, DraftKings has a first mover advantage as many of its customers are converted from the DraftKings daily fantasy sports offering. The quality of their sportsbook product along with increasingly targeted promotional spending results in strong customer retention and high lifetime values. In states where iCasino is legal, DraftKings can cross-sell OSB customers. DraftKings’ scale and product advantages are creating a flywheel that will enable the company to continue to out-invest the competition in acquisition marketing, retention, and research and development. The high barriers to entry are resulting in a consolidated industry that will eventually lead to a highly profitable business. This is evidenced by older-vintage state contribution margins that are already approaching 40%. Longer term, we believe DraftKings can generate EBITDA margins between 20% and 30% with strong free-cash-flow conversion.”
