As the world returns to normalcy, the sports betting market is heating up again, and DraftKings (DKNG) is one of the companies that is benefiting from it. Since going public in 2020, DraftKings has had a meteoric rise, with the stock increasing from $16.64 to $20.69 year to date. As of August 2023, DraftKings has a market capitalization of $8.35 billion, making it a major player in the online sports betting industry. So, what caused the bullish run for DraftKings, and can it continue?

The Legalization of Sports Betting

One of the primary reasons for DraftKings’ success is the increasing legalization of sports betting in the United States. Before the Supreme Court’s decision to strike down the Professional and Amateur Sports Protection Act (PASPA) in May 2018, sports betting was only legal in a few states. However, since then, more and more states have legalized sports betting, with 25 states and Washington D.C. having done so as of August 2023.

As more states legalize sports betting, DraftKings and other companies like it have expanded their offerings in those states. For example, DraftKings has a partnership with the NFL’s New York Giants, which will enable it to open a sports betting lounge in MetLife Stadium in New Jersey, where sports betting is legal. As more states legalize sports betting, DraftKings is well-positioned to capture a large share of the market.

The Growth of the Online Gaming Market

Another reason why DraftKings’ stock price has skyrocketed is the growth of the online gaming market. The pandemic has forced more and more people to stay at home and look for ways to entertain themselves. As a result, online gaming has become increasingly popular, and DraftKings has been able to capitalize on this trend.

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DraftKings’ daily fantasy sports (DFS) offerings have become increasingly popular, with more than 1 million active users.. Through its DFS offerings, DraftKings has been able to create a loyal user base that can translate to its sports betting offerings as well. For example, a user who enjoys playing DFS for NFL games is more likely to place bets on NFL games as well.

DraftKings has also expanded its offerings beyond sports betting and DFS. In March 2021, it launched DraftKings Marketplace, which enables users to buy and sell NFTs, collectibles, and other sports-related digital assets. As the market for blockchain-based assets continues to grow, this could be a significant revenue stream for DraftKings in the future.

Expansion into New Markets

One of the keys to DraftKings’ success has been its ability to expand into new markets. In addition to its strong position in the United States, DraftKings has also expanded into Canada and parts of Europe. For example, it launched its sportsbook in Canada in November 2020, and it has since expanded its offerings to several Canadian provinces.

In addition, DraftKings has partnered with several European soccer teams and leagues, including the English Premier League, La Liga, and the German Football League. These partnerships have helped DraftKings expand its reach beyond North America and into new markets with soccer fans.

Future Growth Opportunities

Looking ahead, DraftKings still has many growth opportunities. For example, it is likely that more states in the United States will legalize sports betting in the coming years, which will enable DraftKings to increase its market share. In addition, DraftKings is looking to expand into new markets, such as Australia and Asia, which could open up new revenue streams.

DraftKings is also exploring new product offerings, such as online casino games. In April 2021, it launched its online casino in Michigan, and it has plans to expand its casino offerings to other states in the future. Online casino games are a significant revenue stream for other online gaming companies like FanDuel, and DraftKings is hoping to replicate that success.

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Potential Risks

Of course, no investment is without risks, and DraftKings is no exception. One potential risk for DraftKings is increased competition. As more states legalize sports betting, more companies will enter the market, which could potentially erode DraftKings’ market share.

In addition, DraftKings is heavily dependent on the performance of the sports industry. If major sports leagues like the NFL, NBA, and MLB were to experience a significant decline in popularity, DraftKings’ revenues could be negatively affected.

Finally, there is always the risk of regulatory changes. While the trend has been towards increased legalization of sports betting in the United States, that could change in the future. If the regulatory landscape were to become more hostile towards online sports betting companies, it could hurt DraftKings’ stock price.

The bottom line

DraftKings has had a remarkable run since going public in 2020, and there are several reasons why the stock price has increased so rapidly. The legalization of sports betting in the United States, the growth of the online gaming market, and the company’s expansion into new markets have all contributed to its success. Looking ahead, DraftKings still has many growth opportunities, but investors should be aware of the potential risks associated with investing in the company. Overall, DraftKings looks well-positioned to continue its growth trajectory in the coming years.

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Dennis is a business and financial writer, who had spent almost his entire life independently reporting on different business ventures with major impact on the US and global economy. Dennis places a special focus on examining tech stocks, biotech stocks all while investing a great part of his early hours to researching and writing on the companies in the US markets. Dennis has 15+ years of experience in financial markets.