by Ian Harvey
IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!
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Options Trade – Draftkings Inc (NASDAQ: DKNG) Calls
Tuesday, January 12, 2021
** OPTION TRADE: Buy DKNG MAR 19 2021 55.000 CALLS at approximately $6.05. (Max. $6.80)
Place a pre-determined sell at $12.10.
Also include a protective stop loss of $2.45.
While some casinos have reopened, they are not seeing a big boom in business. Many folks are still wary of traveling. It also doesn't help that the daily news is full of warnings from various agencies about inside activities and the heightened risk of coronavirus infections.
Some diehards have made their way to the casinos, but business is nowhere near peak levels. The vaccine will help change that. But it will be at least six months before gamblers start heading back in more significant numbers.
It is probably too soon to start betting on a full recovery in casino stocks.
But there are a couple gambling stocks on the rise that don't need casinos at all. One in particular is still steeply undervalued right now…online sports and gaming name DraftKings (NASDAQ:DKNG).
Online sports betting is legal in 12 states, and six more have passed legislation that have not yet implemented the infrastructure to support betting. Over the next few years, we will see the majority of states legalize online sports gambling.
Online sports betting and gambling is going to be an enormous business.
And, DraftKings was one of the biggest stories of 2020, but the future could be much brighter with the best yet to come.
DraftKings estimates that the total addressable market for online sports betting and iGaming is over $40 billion in the United States. Management estimates that it should be able to claim as much as $4.9 billion of that revenue over the next few years.
DraftKings has a considerable edge over competitors. It already has more than 4 million users on its daily fantasy platform, wagering money on fantasy sports.
It will be an easy sale to move those customers into the sportsbook platform when the time comes in each state. It also has eight years of data that can be analyzed to figure out ways to acquire and retain customers.
DraftKings Inc operates as a digital sports entertainment and gaming company. It provides users with daily sports, sports betting, and iGaming opportunities. It is also involved the design and development of sports betting and casino gaming platform software for online and retail sportsbook, and casino gaming products.
During 2019 DraftKings, which started life offering fantasy games to avoid being accused of being a bookie joint, had revenue of $323 million. Its market cap on May 13 was over $8.2 billion.
But today’s DraftKings isn’t that DraftKings. In December, before coming public, DraftKings merged with SBTech, a Europe-based provider of online gaming technology. This means it can offer both sports bets and casino games, once that’s legal. In a presentation upon the merger, DraftKings estimated the ultimate size of the U.S. sports betting market at $14-$23 billion.
DraftKings had a good year in 2020 despite the weirdness that was the world of sports. In the most recent quarter, the company reported revenue increases of 98% year over year. When you back out the revenue gains from acquisitions, DraftKings still saw a 42% increase in revenue from the core business.
DraftKings' data-driven marketing strategy continued to pay off as it reported an increase in unique monthly payers of 64% to over 1 million.
DraftKings also introduced 2021 revenue guidance of $750 million to $850 million. That works out to be a 45% revenue increase in 2021.
Equities research analysts at Piper Sandler issued their FY2025 earnings per share estimates for DraftKings in a report released on Thursday, January 7th. Piper Sandler analyst Y. Kim expects that the company will post earnings of ($0.25) per share for the year. Piper Sandler has an "Overweight" rating and a $58.00 price objective on the stock.
Also, equities analysts expect DraftKings to announce sales of $229.70 million for the current fiscal quarter. Seven analysts have issued estimates for DraftKings' earnings. The highest sales estimate is $234.56 million and the lowest is $226.20 million.
The company is scheduled to issue its next earnings results on Friday, February 12th.
DraftKings signed deals with the Chicago Cubs, Colorado Rockies, and New York Giants to be exclusive sportsbook partners. The Cubs deal includes a possible sportsbook located in Wrigley Field.
It also announced a multi-year agreement with ESPN to work together in various areas, including becoming a co-exclusive sportsbook link-out provider and exclusive daily fantasy sports link-out provider.
Wagering on drone racing events is legal in Colorado, New Hampshire, New Jersey, Tennessee, and West Virginia, with approvals pending elsewhere.
Since consumers can also bet on cricket, darts, and table tennis through DraftKings, why not drone racing? The arrangement will give DraftKings a higher profile as it will gain exclusive marketing rights around sports betting and branding integrations, including custom gates.
In states where it's legal, drone racing fans will be able to bet both before a race and while a race is under way. And drone racing fans are highly engaged.
The announcement notes consumer research suggests drone racing fans are 90% more likely to be interested in sports betting generally than the average global sports fan, but are also three times more likely to bet on a drone racing event than fans of major sports leagues.
DraftKings chief business officer Ezra Kucharz said in a statement, "Our expertise in sports betting combined with (Drone Racing League's) stats-packed competition will make this a fun and seamless opportunity to engage their avid audience along with tech-savvy, adrenaline-loving sports fans."
Even in a coronavirus-filled world, sports are being played. States are rushing to legalize sports gambling, not just because the public wants it, but because many are in desperate need of tax revenue.
In the short term, the slate of sports activity has the potential to drive DKNG stock, but the longer-term picture will be states migrating to some form of legalized sports betting. For instance, New York state joining the fray is sure to boost demand. However, in some instances it’s proving to be a slower transition to online sports betting, as we’ve seen in states such as Michigan.
Online sports betting (OSB) company DraftKings was just deemed a top pick for 2021 by Rosenblatt Securities analyst Bernie McTernan. Recently, the five-star analyst reiterated a Buy rating and $65 price target.
Amid the ongoing public health crisis, state budgets are getting worse, and as a result, new states are considering passing legislation to allow OSB and iGaming.
“We continue to find DKNG’s equity attractive as a pure play and top two player in the emerging online sports betting (OSB) and iGaming markets. Near-term, we are focused on the entry into new states like MI and VA,” McTernan mentioned.
Most important, however, for the company will be “the outlook for new legislation,” in McTernan’s opinion.
states evaluate the impact of COVID-19 on their budgets we continue to believe
it will push states to consider OSB and iGaming legislation. This scenario
appears to potentially be playing out in NY as a $15 billion state deficit and
question marks on if and how much federal aid the state will get has seemingly
driven opponents of the bill, like Governor Cuomo to potentially be a support,”
DraftKings is going to be an enormous player in the online sports betting industry here in the United States. It is already active in 10 states with 20% of the U.S. population, and it's looking to expand as more states legalize sports betting.
DraftKings has a 52 week low of $10.60 and a 52 week high of $64.19. The stock has a 50-day simple moving average of $50.20 and a 200 day simple moving average of $43.00.