Portfolio Insight: Why We’re Buying DraftKings (DKNG) in Mid-August
At 43 North Investments, we seek opportunities where timing aligns with strong fundamentals. Our recent position in DraftKings reflects a convergence of seasonal momentum, improving profitability, and long-term structural tailwinds in U.S. sports betting.
1. Seasonal Tailwinds & Pre-Earnings Momentum
Historically, August has been a strong month for DraftKings, with an average return of +5.4% since 2019 and gains in two-thirds of those years—including spikes of up to +22%.
DraftKings also tends to see a 5–6% rise in the two weeks leading up to earnings. With Q2 results expected in early to mid-August, we believe now is a tactical entry point.
2. Accelerating Revenue Growth
DraftKings has demonstrated impressive top-line expansion:
Revenue grew from $2.2B to $4.8B in just four years (~44% CAGR)
Q1 2025 revenue increased 20% YoY to $1.41B
This reflects healthy user growth, high engagement, and operational leverage.
3. A Clear Path to Profitability
After years of heavy investment, DraftKings is turning profitable:
Positive adjusted EBITDA achieved in Q4 2024
FY 2025 EBITDA guidance raised to $800M–$900M
In Q1 alone, the company delivered:
$103M in adjusted EBITDA
15% YoY growth in sportsbook handle
$1.1B in cash on hand
Margins continue to expand as scale improves.
4. Industry Leadership & Structural Tailwinds
DraftKings and FanDuel together control ~80% of the U.S. online sports betting market. The industry is forecast to reach $39B in total addressable market by 2030, with legalized betting active in 38 states and Washington, D.C.
As new states come online, DraftKings’ strong brand, product depth, and user acquisition playbook put it in a prime position to benefit.
5. Momentum and Market Support
Year-to-date return: +20%, outperforming the S&P 500
3-year CAGR: ~51%
Analyst sentiment: “Strong Buy” with a ~18% upside to the $52.70 average target (30 analysts)
The stock currently trades in the upper half of its 52-week range, and strong Q2 earnings could further unlock value.
Why Mid-August?
Our thesis aligns with three key factors:
Historic pre-earnings momentum (+5–9%)
Seasonal August strength
Anticipation of a beat-and-raise Q2 report
Key Risks and Mitigation
RiskDescriptionMitigationSports outcome volatilityVariability in hold rate due to bettor winsLong-term average hold is improving; diversified revenue from iGaming and DFSRegulatory pressureTax hikes or legal scrutinyMarket dominance enables pricing power; industry trends favor large players
Strategy
Target allocation: 2–4% of portfolio
Tranche 1: Entry around $44–$45
Tranche 2: Potential add post-earnings, based on guidance and sentiment shifts
What we’re monitoring:
Handle growth and margin trends
Adjusted EBITDA vs. guidance
Analyst revisions and commentary
Conclusion
DraftKings is well-positioned with a strong balance sheet, operational momentum, and favorable industry dynamics. Our mid-August entry aims to capture near-term upside while holding for longer-term structural growth.
We view this as a high-conviction addition to a growth-oriented portfolio.
