A fourth-quarter slide in the DraftKings stock price led to two of its largest institutional investors increasing their positions.
Both Vanguard Group and ARK Investment Management added DraftKings stock shares from October through December according to their filed 13Gs.
Anyone bullish on $DKNG saw discounted opportunities to add to their stakes in the fourth quarter. The stock closed at $27.47 Dec. 31, down 45.7% from the $50.56 closing price on Oct. 1. That compares to a 52-week closing high of $71.98 from last March 19.
Details on increased DraftKings stock stakes
The Vanguard Group increased its stake to 26.3 million shares, or 6.5% ownership, as of Dec. 31. That is up from 24.7 million shares and 6.1% ownership as of Sept. 29.
ARK Investment Management filed its first 13G for DraftKings with 21 million shares for a 5.2% stake.
That stake already fell back below 5%, though, according to ARK’s investment tracker. ARK held 4.94% of DraftKings across its combined holdings at the end of business Wednesday.
ARK caused a DKNG price spike a year ago when it purchased 620,300 shares at $59.
Morgan Stanley: now is the time to buy DKNG
In a Jan. 26 note titled “Too Big an Opportunity to Ignore,” Thomas Allen of Morgan Stanley upgraded DraftKings to overweight with a $31 target. Allen wrote the note when the stock was $19.32. The stock closed Wednesday at $23.42.
While there are near- to medium-term profit concerns, “one should not ignore” that DraftKings has a leading market share in what will be a “very large profitable market,” Allen wrote.
The incredible launch of mobile sports betting in New York reminded Allen of just how big but concentrated the opportunity for US sports betting and iGaming is.
Reasons for upgrade
Allen’s upgrade received pushback from investors with the main focus on margins, he said in a follow-up note five days later.
He addressed the concerns with some of his expectations that led to the upgrade:
- Promo spending will decrease significantly once the majority of states mature and the focus on customers shifts to retention from acquisition. Allen expects DraftKings to spend about $1.25 billion on marketing and promotions annually through 2025, which implies a “very healthy” reinvestment rate of 37% of gross revenue in 2025, he added.
- Gross profit margins will drop to 41% in 2022 from 46% last year but that is mostly due to New York, Allen said. Those margins should grow to 54% by 2025.
- Any positive surprise could lead to a significant pop for the stock, Allen said, given how bearish most investors are on the near-term.
- Investors pointed to a preference for other operators. Allen said he also ranks BetMGM joint venture partner Entain, FanDuel parent Flutter, and Caesars as overweight. DraftKings is a pure play on US sports betting and iGaming, with the most negative sentiment, though, which creates a “greater opportunity to be a contrarian with it.”
DraftKings will report its fourth-quarter earnings Feb. 18.