DraftKings, Airbnb, And The Future Of IPOs

A little over a month ago, we unpacked the technical tenacity of online sports betting company DraftKings Inc (Nasdaq: DKNG), a key cog in the gambling machine. Despite the assessments of sports gambling legislation, options activity, and possible headwinds, only the surface was scratched. It's time for a deeper dive into DKNG, its history, and an important trend among growth stocks in 2020.

As V-shaped recoveries go, DraftKings just offered up the pinnacle. The last time DKNG was mentioned in this space, the stock was trading $44.58, 30% off its just-established Oct. 2 all-time high of $64.19. The shares kept careening lower from there, finally settling just below $35 on Oct. 30. Yet November has been an entirely different story; DKNG bounced off its 160-day moving average promptly on Nov. 1 and has so far racked up a 38.2% month-to-date lead. This was fueled by a post-earnings pop of 3.9% on Nov. 13, after a quarterly report that saw earnings and revenue top expectations.

As DKNG was digging out of that October hole, some consolidation occurred at the 300% year-to-date level. Per the chart below, this has been a congestion area for the equity in the past, most notably in June. Of course, after that, DKNG topped out at the 500% year-to-date level just four months later. With a $16 billion market cap, is a similar bounce in store to kick off 2021?

COTW DKNG Nov 20

There's more to DraftKing's impact beyond the sports betting landscape. DraftKings became a public company in April 2020, the product of a $3.3 billion merger with Diamond Eagle Acquisition Corp. This is notable because Diamond Eagle Acquisition is a Special Purpose Acquisition Company (SPAC), often referred to as a "blank check company." In other words, capital is raised strictly for the purpose of acquiring an existing company. It's a way to circumvent the traditional initial public offering (IPO) process. SPAC popularity has exploded in 2020 on the backs of success stories such as DKNG and Virgin Galactic Holdings (SPCE), so much so that angel investor Bill Ackman got in on the action. Per StockNews.com, as of July 9th, 2020, there were 39 SPAC IPOs that raised gross proceeds of $12.3 billion, nearly eclipsing all SPAC gross proceeds raised in the full year 2019.

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William K. 1 month ago Member's comment

All of the gambling businesses, regardless of how "legal" they may be based on local laws, tend to have the aura of corruption surrounding them, at least as I see it. Others can say it is good business, and certainly it can be profitable. But that does not make it honorable.

William K. 1 month ago Member's comment

Quite interesting indeed. But it is puzzling as to what creates the trust that allows folks to invest in a nebulous entity.At least that is how I see it.

"Having the potential" is not the same as completing the act, And certainly there is no potential so wonderful that it can't be mismanaged towards a disaster. Just consider the USA economy with regard to debt. So a question as to just how much thei new scheme is going to alter the real estate, travel, and retail industry will certainly be an interesting show.