{"id":4916,"date":"2022-02-19T15:13:30","date_gmt":"2022-02-19T22:13:30","guid":{"rendered":"https:\/\/financegourmet.com\/blog\/?p=4916"},"modified":"2022-02-19T15:13:33","modified_gmt":"2022-02-19T22:13:33","slug":"draft-kings-stock","status":"publish","type":"post","link":"https:\/\/financegourmet.com\/blog\/investing\/draft-kings-stock\/","title":{"rendered":"Is Draft Kings Stock a Buy?"},"content":{"rendered":"\n

Draft Kings stock got hammered on Friday (2\/18\/22). <\/p>\n\n\n\n

Why?<\/p>\n\n\n\n

Well, there are plenty of self-important, chest-puffing, stock analysts’ pieces out there for you to read up about if Draft Kings is a sell, a buy, or hold, but you don’t have to read them.<\/p>\n\n\n\n

\"draft<\/figure><\/div>\n\n\n\n

The promise of far too many recent IPO stocks, stocks heading for IPO, and plain old venture capital backed unicorns is “unlimited growth potential.” This is the key to big venture capital raises, and huge IPO numbers. Profits? Nope. Stable customers? Puh-lease. Silicon Valley tech bros and their Wall Street counterparts don’t like being shackled down by old world metrics like GAAP and reality. They prefer knowing exactly how much potentially unlimited limitless is out there. Everything else is for brick and mortar stocks.<\/p>\n\n\n\n

How Draft Kings Got Unlimited Potential<\/h3>\n\n\n\n

Once upon a time almost no states allowed online gambling and betting. In fact, it was just over two decades ago that the Feds got mad at all the online gambling websites out there pretending they weren’t violating U.S. law by having some part of their operation outside the United States. It took the Feds about a year to scare the banks into cutting off the flow of cash and all of those real-money online poker sites suddenly were no-bet, free-to-play, online poker sites.<\/p>\n\n\n\n

Somewhere along the line, American progressives started winning some battles against the old-world conservatism of a United States history born of Puritans and scarred by prohibition. By ignoring the federal level government where rural American’s oversized influence keeps everything nice and stodgy, progressives found fertile ground in the states for all kinds of libertarian notions starting with medical marijuana and moving quickly forward to online gambling. <\/p>\n\n\n\n

States started legalizing gambling one-by-one. Not the biggest states like New York, California, or Texas, at first, but smaller ones, creating markets too small to bother the biggest established gambling players. In these smaller states there was plenty of room for someone like Draft Kings. In fact, Draft Kings was first to take an online bet, when the only place it was allowed was New Jersey. Hitch your company to the Apple app store, and the potential is unlimited.<\/em><\/p>\n\n\n\n

It Costs Too Much To Be Draft Kings<\/h2>\n\n\n\n

Except it isn’t. It is actually very limited. It turns out that not every man, woman, and child in America likes sports. Even fewer like sports enough to bet on them, and even fewer actually bet more than once a month. In fact, a lot, far too many people who download betting apps like Draft Kings only make a handful of bets. Many of these people are “pride bettors.” They bet on the Cubs to win the World Series, or the Lakers to go all the way, but it never even crosses their mind to bet on Thursday Night Football in November.<\/p>\n\n\n\n

It gets even worse for Draft Kings. Enough states now allow legal, online, app-based betting that it is worth it for big gambling operations to show up. The Caeser’s Sportsbook app commercials are on my TV so much I’ve grown to hate them. They even paid to have the Mannings in their commercials. Jamie Foxx is on TV telling me to get some skin in the game for the MGM one. It would be easy to forget Draft Kings, or even to have never heard of them at all.<\/p>\n\n\n\n

Since none of the apps have really been around that long to build up any sort of sticky, brand loyalty, and all sports bets are basically the same no matter where you make them, Draft Kings has to be constantly advertising so that you remember to their app instead of another one. Then, they have to offer free bets to attract new users because others offer free bets, and it costs a lot of marketing dollars to even stay relevant.<\/p>\n\n\n\n

Check out my investing apps reviews<\/em><\/a>.<\/em><\/p>\n\n\n\n

It Is Too Easy To Be Draft Kings<\/h2>\n\n\n\n

Which brings us to the real problem. It just isn’t that hard to be Draft Kings. Anyone can design a betting app. Copy the sportsbooks in Vegas, make it fit the screen, done. The coding isn’t hard, with even a small team of competent coders. The back-end is all bank transfers. Anyone can be Draft Kings. Heck, even Barstool is Draft Kings.<\/p>\n\n\n\n

It isn’t really Draft King’s fault. The types of bets sports betters use are standardized. Casual betters don’t need bets more complicated than team to win, plus or minus points, and expert betters don’t trust “new” bets. Beyond that, DraftKings are constrained within the small pen of allowable legalized gambling.<\/p>\n\n\n\n

Potential Is Never Unlimited<\/h2>\n\n\n\n

The potential is never unlimited. They know it. You know it. I know it. But, you must never, ever admit that it isn’t because, otherwise, what is your worth again? Profits? We can get those at KO.<\/p>\n\n\n\n

Draft Kings reported earnings on Friday and dropped a big bag of reality all over its potential earnings and investors ran screaming from the room to find unlimited potential somewhere else.<\/p>\n\n\n\n

If you want the details, Draft Kings revenue grew $100 million over last quarter, but marketing went up almost as much. That’s not unlimited. That’s one for one. One dollar of marketing, for every dollar of sales. And if your potential isn’t going to be unlimited, then fine, we’ll care about your profits. <\/p>\n\n\n\n

Oops.<\/p>\n\n\n\n

Draft Kings lost $326 million dollars last quarter<\/a>. <\/p>\n\n\n\n

Which begs the question. Where will it get the dollars it needs to spend to get new dollars?<\/p>\n\n\n\n

Looks like we’ll find out because management expects a loss of $825 to $925 million in 2022, because New York finally said yes, and there will be lots of Draft Kings spending lots of money trying to make them customers… if only the potential were unlimited.<\/p>\n\n\n\n

Is Draft Kings a Buy or a Sell?<\/h3>\n\n\n\n

Unless Draft Kings’ social thing becomes the place<\/em> to be in sports betting, I don’t see how this company does anything other than get bought by a bigger company down the road somewhere. If the bigger idiot theory works out, then there might be a profitable trade to be had on Draft Kings. Otherwise, someone will basically pay for their employees and customer list and that’s a loss. <\/p>\n\n\n\n

There is obviously no dividend, so you know how I feel about that.<\/p>\n\n\n\n

The author for all articles on Finance Gourmet is Brian Nelson. Brian is a former Certified Financial Planner and financial writer. He does not own any of the securities mentioned above but that can change at any time. This is not an offer, or recommendation, to buy or sell securities. Consult your own financial professional for investing advice.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Draft Kings stock got hammered on Friday (2\/18\/22). Why? Well, there are plenty of self-important, chest-puffing, stock analysts’ pieces out there for you to read up about if Draft Kings is a sell, a buy, or hold, but you don’t have to read them. The promise of far too many recent IPO stocks, stocks heading for IPO, and plain old venture capital backed unicorns is “unlimited growth potential.” This is the key to big venture capital raises, and huge IPO numbers. Profits? Nope. Stable customers? Puh-lease. Silicon Valley tech bros and their Wall Street counterparts don’t like being shackled down by old world metrics like GAAP and reality. They prefer knowing exactly how much potentially unlimited limitless is out there. Everything else is for brick and mortar stocks. How Draft Kings Got Unlimited Potential Once upon a time almost no states allowed online gambling and betting. In fact, it was just over two decades ago that the Feds got mad at all the online gambling websites out there pretending they weren’t violating U.S. law by having some part of their operation outside the United States. It took the Feds about a year to scare the banks into cutting off the … <\/p>\n

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