We came across a bullish thesis on DraftKings Inc. (DKNG) on Substack by Daan Rijnberk. In this article, we will summarize the bulls’ thesis on DKNG. DraftKings Inc. (DKNG)’s share was trading at $45.57 as of Feb 21st. DKNG’s forward P/E was 28.90 according to Yahoo Finance.
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DraftKings has rapidly solidified itself as a dominant force in the online gambling and sports entertainment industry, leveraging strong execution and strategic expansion to surpass FanDuel in market share. With a 31% share of the market, the company has capitalized on regulatory shifts and the broader transition to digital gaming, propelling it to the forefront of the industry. Despite an 85% decline from its 2021 peak, DraftKings’ stock has rebounded nearly 400% from its late 2022 low, reflecting improving financials and operational strength. The company’s revenue has grown at an astounding 87% CAGR from 2020 to 2024, reaching nearly $5 billion annually, with unique users quadrupling over the same period. EBITDA margins have steadily improved, turning positive in 2024, and stock-based compensation as a percentage of revenue has declined significantly, signaling a commitment to financial discipline.
DraftKings’ recent Q4 earnings report exceeded expectations, triggering a 15% surge in its stock and pushing year-to-date gains above 40%. Management’s optimistic 2025 guidance, bolstered by strong user growth and expanding margins, has fueled further investor confidence. The company’s data-driven approach, seamless user experience, and aggressive marketing have given it a competitive edge, allowing it to maintain high engagement and integrate innovative gaming solutions. The legalization of online sports betting across additional U.S. states provides a significant runway for continued growth, further strengthening its long-term thesis. The company remains founder-led, with CEO Jason Robins guiding its evolution since 2012. His leadership has been instrumental in driving DraftKings’ expansion, particularly in the online casino segment, which enhances revenue diversification.
DraftKings’ fourth-quarter results highlighted both strong operational trends and a promising outlook. Q4 revenue reached $1.4 billion, up 13% year-over-year, aligning with expectations despite the absence of major sporting events. Full-year 2024 revenue grew by 30% to $4.8 billion, reflecting continued strong momentum despite moderating post-pandemic tailwinds. More crucially, the company added 800,000 unique customers in Q4, a 36% increase, and 3 million for the full year, bringing the total user base to 10.1 million. This level of growth, even at scale, underscores DraftKings’ ability to attract and retain customers despite intensifying competition. While average revenue per user (ARPU) declined due to lower betting activity, the sportsbook hold percentage improved 80 basis points to 11.2%, driving profitability gains.
On the profitability front, DraftKings outperformed expectations, with Q4 gross margin hitting 45% and EBITDA reaching $89 million, translating to a 6.4% margin. Full-year EBITDA came in at $332 million, reflecting disciplined cost control. Despite 30% revenue growth, operating expenses rose only 5%, as customer acquisition costs continued normalizing. As market consolidation eases competitive pressures, DraftKings has reduced its reliance on aggressive promotional spending, with acquisition costs declining roughly 20% annually since 2021. This efficiency is positioning the company for sustained margin expansion.
Looking ahead, management expects a rapid acceleration in profitability, forecasting EBITDA of $1 billion in 2025, $1.4 billion in 2026, and $2.1 billion by 2028. These projections exclude potential benefits from new state entries, which could drive an additional $6.2 billion in revenue. 2024 also marked DraftKings’ first year of positive free cash flow, with management guiding for nearly $1 billion in 2025. With profitability inflecting, concerns over long-term unprofitability are becoming obsolete, and the company is poised to generate significant shareholder value.
DraftKings maintains a strong balance sheet, with $788 million in cash against $1.3 billion in long-term debt. While not ideal, the company’s rapidly improving cash flow trajectory provides ample flexibility. The transition from a high-growth platform to a cash-flow-generating business is well underway, supporting its long-term investment thesis. Management remains confident in sustaining a mid-to-high teens revenue CAGR through the end of the decade, while EBITDA and EPS growth could outpace revenue growth at a 30%–40% CAGR. The company’s dominance in the U.S. market and potential for international expansion present further upside.
DraftKings is off to a strong start in 2025, fueled by record engagement during the Super Bowl, where its app ranked #1 in the sports category and #3 overall in the App Store. Capitalizing on this momentum, management raised its 2024 revenue outlook to $6.4 billion–$6.6 billion, reflecting 32%–38% year-over-year growth—an acceleration from 2024 that exceeds Wall Street forecasts. This revised guidance surpasses the company’s original 2026 revenue target, highlighting its robust growth trajectory. On the profitability front, DraftKings reaffirmed its 2025 EBITDA guidance of $900 million–$1 billion, implying a 14.6% margin. Gross margins are expected to remain steady at 46%–47%, while declining stock-based compensation underscores disciplined expense management. Free cash flow is projected to reach $850 million, benefiting from an impressive 90% EBITDA-to-FCF conversion rate. Notably, this forecast does not yet account for potential tailwinds from new market expansions, leaving room for further upside.
DraftKings remains a compelling long-term investment, driven by expanding U.S. state legalization and the company’s ability to outperform expectations. Despite regulatory challenges, its current 25x EBITDA multiple suggests fair value. Applying a conservative 18x EBITDA multiple to long-term projections results in a $80 price target by the end of 2027, implying a 17% annual return. This estimate remains cautious, as it excludes potential growth from further legalization. With shares trading near $50, the stock presents an attractive risk-reward opportunity. DraftKings’ strong execution, consistent outperformance, and leadership in the online gambling space make it a standout investment, well-positioned to sustain high growth and unlock further value in the evolving industry.
DraftKings Inc. (DKNG) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 65 hedge fund portfolios held DKNG at the end of the third quarter which was 54 in the previous quarter. While we acknowledge the risk and potential of DKNG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DKNG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.