DraftKings Among ARKK ETF Holdings with Big Upside Potential
Following a brutal 2022 in which it lost two-thirds of its value, the famed ARK Innovation ETF (NYSEARCA: ARKK) is on the mend in early 2023, surging 35.32% since the start of the year.
There could be more gains in store for the actively managed exchange traded fund (ETF) because several of the ETF’s holdings currently reside well below analysts’ consensus price targets. That group includes DraftKings (NASDAQ: DKNG), which is already among 2023’s more scintillating rebound stories.
CNBC screened for stocks in the fund that have more room to run this year. We looked at companies with at least five analysts covering them, and these names all have more than 10% upside in the next 12 months, according to FactSet,” reports the financial news network.
DraftKings is among nine ARKK components CNBC highlighted with at least 10% upside relative to Wall Street consensus price forecasts. Entering Monday, DraftKings resided 22.2% below the average price target of $20.33. Shares of the online sportsbook operator closed higher by 0.47%, extending the stock’s year-to-date gain to 48.81%.
Wall Street Applauds DraftKings Layoffs
Last Wednesday, DraftKings announced it is laying off 140 employees, or about 3.5% of its workforce. That follows news that Bally’s (NYSE: BALY) may cut up to 15% of staff in its interactive unit. While those are gloomy headlines, some analysts applaud the moves because they indicate gaming companies are focusing more on profitability in their online businesses.
While unfortunate, we see these moves as a necessary positive to reach sustainable economic levels before both divisions turn profitable,” wrote Truist analyst Barry Jonas in a recent report.
DraftKings, in particular, is facing pressure to turn profitable at some point this year –an intensity that’s only amplified with rival Barstool Sportsbook eking out a fourth-quarter profit and BetMGM and Caesars Sportsbook likely to stop losing money this year, too.
Adding to the pressure on DraftKings to make money is the point that Fanduel — the largest online sportsbook operator in the US — was likely profitable or close to it for all of 2022.
Boston-based DraftKings delivers its fourth-quarter earnings report on February 16. The company could use that opportunity to update analysts and investors on its 2023 revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) outlooks.
ARK Invest Longtime DraftKings Backer
Cathie Wood’s ARK Investment Management, the issuer behind the aforementioned ARKK ETF, has long supported DraftKings stock. The gaming company hasn’t been a standalone publicly traded entity for three years. But ARK is already one of the largest institutional owners of the shares.
In the $6.02 billion ARKK, DraftKings is the number 15 holding, accounting for 3.39% of the fund’s roster. The Florida-based asset manager also holds shares of DraftKings in the ARK Fintech Innovation ETF (NYSEARCA: ARKF) and the ARK Next Generation Internet ETF (NYSEARCA: ARKW).
ARK is broadly bullish on the online sports wagering industry, projecting that US and Canadian handle will surge to $330 billion over the next five years.
The news outlet CNBC also identified casino giant DraftKings as one of the ARKK components with significant upside, as it currently trades 22.2% below its average price target of $20.33. Despite recent layoffs, analysts like Barry Jonas from Truist view these moves as necessary for reaching sustainable profitability.
Looking forward, DraftKings is expected to provide an update on its 2023 revenue and EBITDA outlooks during its fourth-quarter earnings report on February 16, a crucial opportunity to reassure investors and analysts. ARK Investment Management, which manages the ARKK ETF, is a longtime backer of DraftKings, holding significant shares in multiple funds, including the ARK Fintech Innovation ETF (ARKF) and the ARK Next Generation Internet ETF (ARKW). The firm believes that the US and Canadian online sports wagering handle will surge to $330 billion over the next five years.
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