DraftKings’ Rapid Growth Raises Caution Among Investors

DraftKings Shares Soar Despite Potential Competition

Shares of DraftKings (NASDAQ: DKNG) have been on an impressive run, surging 38.31% over the past month and 236.60% year-to-date. However, some analysts are advising caution with the high-flying gaming company.

The online sportsbook operator recently stunned investors with elevated 2023 and 2024 earnings before interest, taxes, depreciation, amortization (EBITDA) and revenue guidance. They also provided strong projections for 2025 and beyond at their recent investor day. However, some market observers believe that DraftKings’ strong third-quarter results were due to an unusually soft competitive landscape.

According to Eilers & Krejeck Gaming (EKG), DraftKings’ market share surged in the July-September period due to soft competition, with competitors like Barstool, BetMGM, Caesars, and Fanatics not fully capitalizing or being competitive in the sports betting market.

Despite the surge in DraftKings’ market share, emerging competitive threats from companies like Bet365, Penn Entertainment’s newly launched ESPN Bet, and Fanatics could pose challenges in the future. DraftKings has acknowledged these new entrants to the sports betting space and says it’s ready for the competition.

Currently, DraftKings and FanDuel dominate the US sports wagering industry, with over 70% market share. Data also indicates that DraftKings is taking share from its competitors, while smaller operators have struggled to compete.

However, with established operators learning from past mistakes and new entrants entering the market with significant capital and competitive products, the competition in the domestic sports wagering industry is evolving and could pose a more credible threat to DraftKings and FanDuel.

Despite potential competition, DraftKings’ fundamentals remain strong, with expectations of having over $1.2 billion in cash on hand by the end of the year. Additionally, the time for a DraftKings customer to become profitable for the company is decreasing, driven by factors like improved bet mix and marketing efficiencies.

These factors, along with at least five sell-side analysts boosting their price targets on DraftKings, have contributed to the ongoing surge in the company’s shares. While new rivals should not be ignored, the operator’s sturdy fundamental outlook remains a positive sign for investors.