-It’s been a rough drawdown in this risk-off environment, my Portfolio was up 14% on Feb 18th, now down -10%
-I have deployed some cash on a few stocks that look attractive
-I have slowly built a 4.5% position in ALAB over the past few weeks. In my humble opinion, ALAB was pretty expensive early in the year, but it certainly has great fundamentals in a hot industry, ie $320 billion in Capex expected this year by the hyperscalers. Now that it’s trading around 40 X NTM EV/EBITA with a Fwd 2-year EBITA CAGR of 65%, there seems to be a good amount of upside
-I’ve also been adding to my 2.5% RDDT position. After a 50% plus drawdown it looks very attractive, 35 x NTM EV/EBITA with a Fwd 2-year EBITA CAGR of 74%.
-APP is an 8% position and looks very attractive at 20 x NTM EV/EBITA, if they can hit or exceed analyst estimates. I’m no adtech expert but the short seller news, which appears to be nonsense, isn’t helping. It was also unfortunate they got rejected for the 2nd time by the S&P, which would have likely given the stock a bit of boost
-I have been adding to TMDX recently, a stock I already covered in another thread. Flight data continues to impress & valuation is quite reasonable if they continue to execute. In my opinion this stock could have 50-100% upside over the next 12 months
-I have a 2% position in DKNG, which I don’t follow very closely. The thesis is that Americans love to bet on sports and more and more states continue to legalize sports betting. Revenue tends to be lumpy and there is always some regulatory risk, ie state taxes, etc that need to be monitored. It is newly profitable, so the EBITA numbers are skewed as its projected to grow the 2-year EBITA CAGR at 178% over the next 2 years. NTM EV/Revenue is only 3 X. Fwd 2 year revenue CAGR is 26%.
77 Likes
I have been afraid to go there with DKNG. They are certainly one of the top betting houses, but two things bother me.
1 - You mentioned regulators - it seems that taxing entities love to seek revenues and increasing taxes is an easy answer for states and it’s a race to the top.
2 - The big boys - ESPN, Fanatics - they can offer things like free streaming subscriptions or merchandise - things that true sports fans will value more highly than bonus bets and things whose costs can be shared across multiple platforms. Where’s the moat?
Vinnie G.
7 Likes
I agree with #1 and I mentioned it as a risk and something to keep an eye on. Each legislature regulates sports betting differently and rising state taxes is definitely a risk to DKNG and needs to be monitored. Also, the continued adoption by new states is important to the long-term story. There are 10 jurisdictions in the US that have begun the process to legalize sports betting just this year. International is also largely untapped. Jackpots is also another vertical that is bringing in some extra revenue so nice to see some creativity by management. DraftKings has consistently grown its user base, and they continue to spend more and more. Ever since states started to open up the legality of sports betting, the number of customers on the DKNG platform has shot up from 1.7 million back in 2018 to ~9 million today, which is over a 30% CAGR…whilst revenue has grown at around a 69% CAGR
I’m not sure a sports betting company could ever have a wide moat, but Draft Kings does have nice technology and operates a Duopoly with FanDuel and they have approx. 37% market share. This gives them brand recognition and network effects. It also gives them operating leverage and an expanding margin story.
Yes, the stock has risks & revenue is very lumpy but it is also riding a pretty good wave. Sports betting is expected to grow 12% annually through 2030. Sports & betting go hand in hand. As I mentioned, they also trade at a very reasonable valuation. It is one of my smallest positions, so my conviction isn’t great but I’m keeping my 2% position for now.
4 Likes
Here’s what drove me out of DKNG:
Studies now show that the #1 cause of death in young men is suicide. Studies are showing a very strong tie between Gambling Debt (GD) and suicide, with one of the factors being that many loved ones or others in a position to help do not know of the problem until the person with the GD feels they are too far gone.
This according to a recent NIH study.
So while legal, I decided to move away from such things.
25 Likes
Good Point. I think I will sell my position. I don’t gamble myself, but I hadn’t really thought about all the potential bad side effects of this Vice. I will probably use the proceeds to bump up my cash in this environment or add to my Amazon position. Amazon is trading at its lowest PE in 3 years and AWS profits looks strong going forward due to the AI wave. I think Amazon is a good anchor stock to balance out some of the high Beta growth names I like such as TMDX, APP, RDDT, HOOD, and ALAB.
23 Likes