We're in the swing of what many would consider peak sports season. Both college football and the NFL are happening; college basketball, NBA, and NHL teams are beginning to practice again; and the MLB is in the middle of its playoff season. It's the time of year when seemingly every day offers a reason to sit on the couch and catch a game.
This time of year also means that sports betting is seemingly inescapable. You may not personally partake, but if you watch a sporting event, you'll notice the endless barrage of sports betting commercials and promotions floating around. DraftKings (DKNG -1.40%), in particular, is a company known to flood airways with its marketing.
Unfortunately, despite its encouraging business progress, DraftKings' stock price is down around 45% from its March 2021 peak. The good news, though, is that it looks like a bargain for long-term investors.
We're still early in the sports betting world
It wasn't until May 2018 that the U.S. Supreme Court gave states the freedom to decide how and if they'd legalize and regulate sports betting. Since then, the number of U.S. sports betters has skyrocketed, and there's plenty of room to keep the momentum going.
In the second quarter of this year (Q2), DraftKings had 3.1 million monthly unique players, leaving plenty of room for its user base to grow. By 2029, U.S. sports betting users are expected to increase by 45% from 2024, and although DraftKings won't capture all of them, it's well-positioned as one of the market leaders to at least grow at a similar pace.
Image source: Statista.
Profitability should be around the corner
In Q2, DraftKings' core operations lost $32.4 billion. That's not ideal, but it's understandable for a growth company at its stage. It was also a nice turnaround from the $69 billion it lost in Q2 2023.
One thing DraftKings has to look forward to is the expected increase in average revenue per sports betting user. Current users bringing in more revenue is one of the more straightforward ways DraftKings can improve its bottom line without relying on additional state adoptions.
Image source: Statista.
At DraftKings' current pace, 2024 should be the last year it posts a loss on its balance sheet. It expects its fiscal 2025 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to be between $900 million and $1 billion, and that profitability should continue.
For better or worse, sports betting is here to stay, and we're in the early stages of what it could ultimately become. DraftKings should be one of the top players in the field (no pun intended) for quite some time. Its current price could seem like a bargain when you look back in a few years.
