In Focus: DraftKings, Think Big, Think Long-Term
The easiest way for the average Joe or Jane to beat Wall Street is to invest long-term, that's it. No bells, no whistles, no complex algorithms, just find something good, buy it cheap, and HODL. The strategy is easier said than done because there are so many things happening in the short term that makes it tough to think five or ten years out.
Today with social media, investors, even those thinking long-term get bombarded with short-term wins from the WallStBets crowd or the StockTwits crowd and sometimes the Twitter and YouTube crowd. Seeing a post of someone that bought a few thousand dollars worth of AMC ($AMC) calls on Friday and woke up Monday to $100,000 makes it really hard to stay focused on long-term investing.
Meme stocks aside, the toys of Wall Street, the actual companies being invested in, are thinking long term, at least the goods ones are. This is in spite of what Wall Street analysts are doing. Jeff Bezos, while CEO of Amazon ($AMZN) stated in the past, no one on his team should be thinking about next quarter. Bezos always maintained a long-term vision, and that vision has rewarded him and his investors greatly.
Last week, there was a news report that DraftKings ($DKNG) was in a bidding war with FanDuel for The Athletic. The Athletic is like the Washington Post or NY Times for sports. Subscriptions for the sports publication topped one million last year, and it's been the subject of merger talks before. Earlier in the year, the rumor was that The Athletic would merge with Axios and then go public via a SPAC merger. The deal with Axios fell through leaving The Athletic up for grabs.
DraftKings' move to acquire The Athletic tells me it is building something big that will pay off in the long term. While Wall Street is thinking about the number of bets DraftKings can get in the next quarter, DraftKings is trying to build out a full fledged digital entertainment ecosystem.
Since I last discussed DraftKings it's down slightly. Since that time in late May 2021, DraftKings moved from around $44.00 per share to over $60 per share, but now it's back in the 40s.
The company's most recent quarterly earnings did not impress Wall Street, and caused a slight sell off on Friday. DraftKings hauled in $213 million of revenue in Q3 2021, a 60% year-over-year increase from revenue in Q3 2020, but the figure missed analysts estimates by $24.9M. The company saw a rise in operation expenses and sales and marketing costs during the quarter which contributed to a $545 million net loss.
Losses aside, DraftKings was able to increase its average revenue per monthly unique payer to $47 during the quarter, up 31% from the same period in 2020. The company adjusted its revenue forecast for 2021 from the range of $1.21 billion - $1.29 billion to $1.24 - $1.28 billion, which still fell short of the $1.29 billion annual revenue that analysts were expecting.
DraftKings also had some regulatory wins during the quarter with successful launches of online sports betting rolling out in Wyoming, Arizona and Connecticut.
A move that speaks to the company wanting to build a bigger enterprise, DraftKings took a $22 billion swing at acquiring British gambling house Entain. They missed, but still, the idea that DraftKings entertained this acquisition goes back to what I wrote earlier, this company is thinking long-term and attempting to build something big.
What's Holding Investors Back
There's a lot to fear when thinking about DraftKings. For one, when there were no sports to bet on during the early days of the coronavirus pandemic, bettors moved from DraftKings to Robinhood, and big wins by fellow novice traders have kept people attached to Robinhood. Also, DraftKings and FanDuel were the first through the door, so they took all the bullets, but now betting has become commonplace. ESPN and almost every other sports entertainment network now shows the betting lines regularly. My fear is that instead of partnering with DraftKings, more companies will take the full leap into betting and daily fantasy themselves.
Thinking Long Term, Finding the Bigger Picture
In 2014 Apple acquired headphone maker Beats By Dre. Prior to the acquisition, the Apple rumor of the time was that the company was going to develop a television. Not many analysts were fans of the Beats by Dre acquisition, some wondered why Apple needed a headphone company, others just preferred the TV ideal. What most people missed, is that acquisition in 2014 was the start of Apple building out its Apple Services arm. The acquisition had very little to do with headphones, it was more about the streaming service that Beats had created. At that time, Apple was still selling songs and albums via iTunes, and they realized it was a dying business. Also, and this is only my opinion, without the Beats by Dre acquisition, I don't think Apple creates the $12 billion business that is Apple AirPods.
DraftKings is in the early stages of building something big. It started with fantasy sports, and then added casino games and a sportsbook. While it's spending money like mad to acquire customers, it's also spending big to expand the platform. While there is a risk that other companies will enter DraftKings' space, I think sitting idly by waiting for someone to do something isn't a smart investment move.
If you want to beat the Street, think and invest long term, find a company with a long term vision and invest in it.