ARK Invest Loads Up On DraftKings as Stock Suffers Worst One-Day Loss Ever

Posted on: November 6, 2022, 06:27h. 

Last updated on: November 9, 2022, 02:44h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Cathie Wood’s ARK Investment Management has added to its previously established stake in DraftKings (NASDAQ:DKNG) in significant fashion, as the stock was suffering its worst intraday loss on record last Friday.

ARK DraftKings
ARK Investment Management CEO Cathie Wood. The firm loaded up on DraftKings as the stock tumbled last Friday. (Image: Bloomberg)

Shares of the sportsbook operator plunged 27.82% on volume that was more than triple the daily average on Friday, Nov. 4. That’s after the Boston-based company issued cautious 2023 guidance, including wider-than-expected earnings before interest, taxes, depreciation, and amortization (EBITDA) loss. DraftKings forecasts an EBITDA loss of $475 million to $575 million next year, far worse than the consensus estimate of $426 million.

The operator said it could be profitable on an EBITDA basis in the fourth quarter of 2023. But that wasn’t enough for investors that have grown tired of waiting for the gaming firm to shed its money-losing ways. DraftKings’ inability to turn a profit looks all the worse after rival FanDuel was profitable in the second quarter, and competitors such as BetMGM and Caesars Sportsbook are close to making money.

Undaunted, ARK Invest bought more than 1.6 million shares of DraftKings last Friday, even as the stock’s year-to-date loss ballooned north of 58%.

ARK Goes Big on DraftKings

ARK, long a backer of DraftKings, spread its Nov. 4 buys of the stock across three of its exchange-traded funds, with 1.36 million of the acquired shares added to the ARK Innovation ETF (NYSEARCA:ARKK) – the firm’s flagship exchange-traded fund (ETF).

Another 228,186 were added to the ARK Next Generation Internet ETF (NYSEARCA:ARKW), while 87,907 shares were directed to the ARK Fintech Innovation ETF (NYSEARCA:ARKF).

That said, it guided to a larger-than-expected adjusted EBITDA loss for fiscal 2023. With plans to launch its platform in Maryland, Ohio, Massachusetts, and Puerto Rico, DraftKings seems well positioned to gain market share in a rapidly growing market,” according to a note from the ETF issuer. “DraftKings offers a suite of mobile consumer entertainment services across sports betting, fantasy sports, iGaming, sports media, and NFTs/collectibles.”

As of the end of the third quarter, Wood’s ARK Invest was the second-largest institutional owner of DraftKings stock, trailing only fund giant Vanguard.

ARK Big on Betting Stocks

DraftKings is the 16th-largest holding of the aforementioned ARK Innovation ETF — the firm’s flagship fund. The stock is the eighth-largest component in the ARK Next Generation Internet ETF.

The internet fund also features exposure to sports betting data provider Genius Sports (NYSE:GENI) and Endeavor Group Holdings, Inc. (NYSE:EDR), the owner of the OpenBet sports wagering business. As for DraftKings, perhaps the best near-term element in the equation is an industry-wide reduction in promotional spending.

“3Q22 results further affirm an industry-wide rationalization in the promotional environment, where incumbent industry leaders are collectively reducing promo/marketing intensity as smaller operators taper back,” wrote Roth Capital analyst Edward Engel in a report to clients.