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Draftkings Inc(DKNG-Q)

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This 1 Crazy Statistic Makes DraftKings Stock a Buy

Motley Fool - Sun Sep 10, 2023

If you've been on the fence about owning DraftKings(NASDAQ: DKNG) stock, this might push you off of it -- a huge number of U.S. residents are eager to place a bet on professional football this recently begun season. And the number is well up from year-ago levels.

What's changed for these football fans? Not a lot, actually. The interest has always been there. The biggest change is the ability to make such wagers. Several more states have legalized mobile gambling, and sports betting in particular. More are on the way too.

The thing is, wagering on NFL games could ultimately prove to be a huge leap forward for the entire sports gambling industry, and for DraftKings in particular.

Most pro football fans want to bet

Based on a survey commissioned by the American Gaming Association (AGA) and performed by Morning Consult late last month, 73.5 million people anticipate placing some sort of bet on the outcome of an NFL game this year. That's over one-fourth of all U.S. adults, and 37% of the country's professional football fans. It's also well up from the 46 million people who expressed an intent to place a pro football bet at this point a year ago. Most of these would-be gamblers plan on placing their bets online.

Enter DraftKings. You may know DraftKings as a fantasy sports platform, but the company is so much more than that these days. While it still provides a variety of fantasy sports offerings, it also operates a conventional sportsbook where legally allowed.

And it's legally allowed in plenty more places than it was just a few years back. The AGA credits mobile sports betting's recent legalization in Kansas, Maryland, Massachusetts, and Ohio for the bulk of Q2's 43.1% uptick in online gambling revenue, extending a lengthening growth streak.

DraftKings is winning at least its fair share of this growth, too. The company surpassed rival FanDuel's share of Illinois' online sports betting in June, for instance, reclaiming a lead it hadn't enjoyed since October of last year. In fact, the draw of DraftKings is one of the key reasons Illinois joins New York as one of the country's two states to see year-over-year growth in sports-betting revenue.

In this same vein, DraftKings reported an 88% year-over-year revenue improvement in its second-quarter top line. The company credits success in markets where it's established to provide the funding needed to expand in markets that may be relatively new.

And more new markets will soon become established markets. Kentucky, North Carolina, Vermont, and Puerto Rico have all already passed legislation that will soon allow for legal mobile sports betting, while 12 more states are now discussing the possibility.

The advent of betting on NFL games, however, could be a surprise game-changer. Not only is professional football the most-watched sport in the U.S., it's also the sport that spurs the biggest and most frequent betting from smartphone owners.

Numbers from CRG Global indicate pro football fans place more bets per month than followers of any other sport, with 72% of betters using mobile apps making at least one wager per week. This is the crowd most likely to download and use the DraftKings app, after which they're readily equipped to place bets on other sports as well.

DraftKings is still underestimated

Most investors know DraftKings is doing well. The shares are up more than 70% in the past year, reflecting this year's expected 58% revenue growth to be followed by another 21% improvement next year -- despite Walt Disney's recent foray into the sports-betting business via a new partnership between its ESPN and casino name Penn Entertainment.

DraftKings' losses are shrinking too, and have even swung to an earnings before interest, taxes, depreciation, and amortization (EBITDA) profit for the quarter ended in June. The company believes its EBITDA will continue widening through the end of the year, too, as more consumers are introduced to its offerings. This projected progress at least partially reflects the impending legalization of sports betting in more states.

These expectations may also underestimate the growth that's ultimately in store. Although eye-opening, the AGA's recent findings aren't exactly unique. While NFL fans may be the most interested and active prospective bettors, numbers from Nielsen indicate more than half the fans of all major professional sports in the U.S. are interested in sports-based wagers.

The intense interest in betting on NFL games is just a means of bringing these people to other sports as well. DraftKings has already proven it's plugged into all of this growth so far.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends the following options: long January 2025 $25 calls on Penn Entertainment and short January 2025 $30 calls on Penn Entertainment. The Motley Fool has a disclosure policy.

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