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Initial Public Offering Assignment
DraftKings is the example used in this assignment. When DraftKings went public in
April 2020 through a reverse merger with the special purpose acquisition company Diamond
Eagle Acquisition Corp, it gained access to around $500 million in new capital. The company
planned to utilize these IPO proceeds to fund its ambitious growth plans and solidify its first-
mover advantage in the rapidly expanding US sports betting market (Pound, 2019). Specifically,
DraftKings outlined multiple key uses for the new capital raised.
DraftKings planned to utilize the approximately $500 million generated from its April
2020 IPO to accelerate growth and expansion. The bulk of the proceeds were slated for increased
marketing and promotional activities, with the goal of rapidly acquiring new customers as legal
sports betting expanded across the United States (Deter, 2020). Additional planned uses were
continuing product development, particularly of the company's mobile apps and web-based
interfaces, expanding into international markets, and potential mergers and acquisitions. Overall,
DraftKings aimed to cement itself as a first-mover leader in the nascent US online sports betting
sector. The biggest planned expenditure was significantly ramping up marketing and promotional
activities (Deter, 2020). The goal was to aggressively acquire new customers across both its
sports betting and iGaming products as individual states continued passing legislation to legalize
sports betting. DraftKings wanted to gain as much brand awareness and market share as possible
while the industry was still nascent.
DraftKings' Long-Term Outcome Goals
DraftKings' overarching long-term strategic goal from the IPO was to establish itself as a
premier global online sports betting and gaming operator. It aimed to become a diversified
industry leader, with an internationally recognizable brand name and large user base across
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multiple products including sports betting, online casino, and daily fantasy sports (Pound, 2019).
The foundation of this strategy was penetrating the newly opening US sports betting market as
deeply as possible. With many individual states just starting to pass legislation to legalize and
regulate sports betting in the wake of the Supreme Court overturning PASPA in 2018, the market
was wide open and fragmented (Pound, 2019). DraftKings planned to capitalize on this with an
aggressive early expansion strategy fueled by the IPO capital. The goal was to become
immediately operational with its mobile-based platform in every state that legalized, gaining
first-mover advantages.
DraftKings planned to be live in as many states as possible, establishing itself as the go-to
destination for legal online betting for the millions of engaged sports fans across the country.
Similarly, the company aimed to roll out the full breadth of its product portfolio, including sports
betting, online casino gaming, poker, daily fantasy sports, and more wherever regulations
allowed (Pound, 2019). The vision was DraftKings becoming the most comprehensive one-stop
betting and entertainment site for US customers.
Internationally, DraftKings aimed to prudently build out its operations in key markets
beyond the US. While North America was the strategic priority, establishing a global presence
was an important part of the long-term plan. This included launching sportsbooks and gaming
products in major legal gambling markets like the UK, Europe, Australia and Canada.
International diversification would hedge regulatory risk, while also giving DraftKings the brand
clout that came with being a global operator. If successfully executed, this strategy was
envisioned to generate strong long-term revenue growth, eventually accompanied by underlying
profitability. By moving early and aggressively, DraftKings hoped to build an insurmountable
market leadership position, even in the face of increasing competition (Pound, 2019). This in
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turn would potentially reward early IPO investors with strong returns as the company and
industry evolved.
DraftKings' Post-IPO Progress
The company has seen tremendous revenue growth since its IPO, with sales increasing
between 57% and 136% year-over-year in the last four quarters. Its three-year revenue growth
rate stands at 99%. This top-line expansion has been driven by DraftKings' ability to rapidly
expand its operations as more states legalize online sports betting and gambling (Stalter, 2023).
The company has increased its market share in these areas, growing its user base and cross-
selling products like its casino and fantasy sports offerings. DraftKings' stock price has also
surged over 150% year-to-date in 2023 on the back of strong execution and frequent earnings
beats. Analysts see substantial potential for further growth, estimating the market could expand
35% in 2023 and DraftKings could hit $5 billion in revenue by 2025 (Stalter, 2023). However,
DraftKings continues losing money as it prioritizes customer acquisition and product
development over profitability. The company says it is making "deliberate and substantial
investments" to support long-term growth. But analysts expect losses to narrow as DraftKings
scales and gains leverage from its early leadership position in the fast-growing US online
gambling industry.
Current Status of DraftKings' Stock
DraftKings' stock (DKNG) is trading at $43.81 in premarket trading as of February 12,
2024. This represents a 0.99% increase from the previous day's close of $43.38. DKNG hit a 52-
week high of $44.04 recently and has a 52-week range of $15.69 - $44.04. Its market cap stands
at $20.226 billion and it has 466.24 million shares outstanding. Compared to the broader market,
DKNG is outperforming the S&P 500 so far in premarket trading. The S&P 500 components
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seeing the biggest moves are AMAT +6.9%, FSLR +5.8%, LRCX +5.5%, EXPE -17.8%, TTWO
-8.7%, and MRNA -6.7%. DKNG's premarket gain of 0.99% indicates positive sentiment among
investors. The stock is building on previous momentum as it trades near its 52-week high.
However, premarket moves may not always translate to the regular session. Broader market
forces and trading dynamics during normal market hours could shift DKNG stock in either
direction later in the day.
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References
Deter, A. (2020). DraftKings to IPO in 2020 Following Merger. Investment U.
https://investmentu.com/draftkings-ipo-merger-2020/
Pound, J. (2019, December 23). Fantasy sports company and bookmaker DraftKings to become
public company. CNBC. https://www.cnbc.com/2019/12/23/draftkings-to-become-
public-company-forgoing-traditional-ipo.html
Stalter, K. (2023). High Rollers Loading Up on DraftKings As Upgrades Roll In. Nasdaq.com.
https://www.nasdaq.com/articles/high-rollers-loading-up-on-draftkings-as-upgrades-roll-
in
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