Is DKNG Ready to Rally after One of the Biggest Sports Betting Events in U.S. History?

Mar 26, 2022

In the LikeFolio office, we take March Madness very seriously.

Earlier this month, we kicked off our Annual Office Draft.

Hypothetically speaking, a prize may be involved. I’m not saying it involves bourbon… but I’m not saying it doesn’t, either.

As a completely unbiased person (tied for first at the moment), I think we should really take a closer look at the prize this year.

But one thing I’ve noticed is that our office isn’t the only group interested in “playing” alongside March Madness.

In fact, wagers on March Madness are projected to hit a record $3 billion.

DraftKings Is an Underdog to Bet On

As a leading U.S. sportsbook, DraftKings could soon ascend to the throne as a beneficiary of this activity.

Sports betting is now legal in 30 states and all but one (Oregon) allow wagers on college games.

That $3 billion estimate could put the 2022 NCAA basketball tournament in the upper echelon of sports betting events.

By comparison, the Rams-Bengals Super Bowl LVI nail-biter brought in a little less than $1 billion. So where does the industry go from here, especially as the market continues to stall out on sports betting names?

Here’s what we know:

1. Sports Betting is Heating Up

Sports betting took off during the pandemic. Like day trading, throwing money at anything from Korean baseball to table tennis suddenly became trendy.

With stadiums and arenas now filling back up (and other social activities resuming), we wondered if interest in sports betting would start to fade.

But it has not.

It has accelerated… rapidly!

LikeFolio has been tracking consumer mentions of placing bets on sporting events for the past decade. Based on a 90-day moving average, Sports Betting mentions are near an all-time high — and well ahead of pandemic levels.

You can see this in the pacing projection for spring 2022, on par to hold the highest sports betting activity in a quarter to date.

The fact that people are increasingly discussing sports betting on social media is likely a reflection of three things. First, more states have legalized it. Second, casinos have reopened. Third, familiarity and comfort levels with sports-betting apps like DraftKings are up.

2. DraftKings Shares are Majorly Discounted

So, with sports betting chatter at a crescendo, surely DraftKings stock must be on fire. Nope.

DNKG is sifting through the ashes of a major meltdown. Earlier this month the stock fell to its lowest level since April 2020, when it was first listed on the Nasdaq.

At less than $20 a share, it is trading more than 70% lower from its peak just 12 months ago.

Enact the mercy rule already!

Some of the sell-off relates to the general SPAC attack and the recent bull’s-eye placed on high-growth, unprofitable names. Concerns about emerging competition from the likes of BetMGM and WynnBET Sportsbook have also played a role. These are valid concerns.

But it makes us ask: Are consumers exploring these new offerings at the expense of the incumbent that is DraftKings?

Not the case.

3. DraftKings is Beating Its Competitors

In fact, as seen in the above chart, DraftKings Purchase Intent Mentions are at their highest level ever. LikeFolio data shows that chatter around signing up and placing bets on DraftKings is up +65% YoY.

Since this seems to coincide with the general trend in Sports Betting mentions, other U.S. sportsbooks must be experiencing the same thing, right?

Again, surprisingly not.

DraftKings Is a ‘Buzz-er’ Beater

According to LikeFolio data, DraftKings’ key competitors aren’t gaining as much steam.

While DKNG’s mentions have trended consistently higher since fall 2021, mentions of Penn Gaming (minority owner of Barstool Sports) have trended lower.

Barstool Sportsbook Mentions show a longer-term upward trajectory, but mentions during March Madness are notably lower YoY: -10%.

In contrast, even though FanDuel usage mentions are growing at a similar rate as DraftKings’, FanDuel happiness levels are notably lower.

This makes sense. Consumers are more likely to jump aboard the sports betting platform that provides the best user experience.

But on top of DraftKings’ demand growth and high consumer happiness ratings, the company is forward-looking.

This is partially driving buzz as of late.

Jumping Into the NFT Game

DraftKings recently announced that its first “Primetime NFT Series” drop would be a 2022 College Hoops Collection in conjunction with March Madness.

With more sports-related non-fungible token (NFT) drops to come, we see this generating more traffic to not only the DraftKings Marketplace (where DK lists NFTs), but the sports betting portals as well.

This is no doubt a hot area to be getting into. Our latest NFT mentions data is clear about that. The hockey-stick trajectory continues, with NFT mentions up 122% QoQ.

Whether consumers are flocking to DraftKings to check out NFTs or to make non-refundable bets is irrelevant in our view. The more buzz around the brand, the better, and the greater likelihood of cross-selling activity.

Summary: DKNG Could Be an Epic Comeback in the Making

The disconnect between what consumers are saying about DraftKings and the company’s stock price is pure March madness.

We are seeing a clear pickup in social media chatter about DraftKings’ platform, promos, and winning (never losing) bets. The talk is consistent with a surge in broad-based sports betting interest. Industry trends are clearly in DraftKings’ favor with more states expected to legalize sports betting over the next 12 to 24 months.

This divergence is one of the biggest we have ever seen. Over time, it is one we expect to be reconciled by an upward correction in DraftKings’ share price.

Growing interest in sports betting and DraftKings specifically could drive some better-than-expected financial results in the quarters ahead. The Q1 report in a couple of months could ignite an epic comeback.

Andy Swan
Founder, LikeFolio