Okay folks, so we got to give a violent update on the market and what the Fed just said. And then I want to talk about one stock that Morgan Stanley said will rise 60 percent from here as it is one of our zip trader favorites. I do want to talk about what their argument is, my thoughts on it, and then why you should have a bullish outlook on this company. You had another day of huge volatility.

started strongly green today with the Nasdaq up three percent at some points at heights and then the Fed spoke and it cooled down to a flat red, slightly green in the Nasdaq, mostly flat if you want the 30 second run down on what Mr. Equity chopper said. Well, they kept rates near zero. But what freaked out the markets was Jerome Powell went and said hey, well the labor market is very, very strong, so if we need to, we can raise rates quite a bit.

But when he's looking at indications in the labor market, he's looking at 2021 and we came off of a very, very strong year. It'll be interesting to see how that dynamic changes if the economy does start slowing down a lot faster than expected. One of my running theories is that as you get closer into the spring and summer and you start getting more quarter over quarter data in, you're going to be in the situation where the economy is slowing faster than expected and the pace isn't really picking up much if the slowing down of the economy and the strengthening of the Us dollar in terms of international markets continues to proceed as it has, you should see inflationary pressure start getting more under control, and at that point you'd see a lot more dovish behavior. I don't know that it would necessarily revert because they do need to unload, but I do think that it would pause and it would steady out a lot more and it would be stretched to a longer time horizon.

It took us a decade after La to really raise interest rates at all, and then it had to go right back down. Overall though, it seems like the next meeting is going to be a much bigger deal because you're going to get more specifics in terms of trajectory changes and shifts and we'll have two more months of reports. Okay, Draftkings. So Morgan Stanley upgraded Draftkings and project.

The sports betting stock can rebound 60, which is what I refer to in the title of this video. But Draftkings is a stock that has performed horribly since the start of September. It has three things going against it: One, You have investors everywhere bailing on any company that went public via Spac and Draftkings went public via spec. Who? You have investors bailing on any companies that don't make profits regardless of what the companies are doing or when they will make profits.

People are bailing because, oh, they don't make profits. It's a growth company. Disgusting. And Draftkings is a growth company.

And the third reason and this kind of builds off the first two, is that valuations are getting clocked right now because of inflation and tightening and de-stimulating of the economy, and so stocks that are looking farther ahead are getting simply clamped in terms of multiples. You have, in some cases, large funds literally shorting anything that looks like innovation or future growth in order to hedge against inflation. And that's bringing them down even faster. Now, I could talk your ear off all day long about how many good growth companies are trading far, far, far below their fair value, while at the same time showing huge proof of concept.

Right now, we are in a very, very unique situation where you have all these massive, massive, innovative trends growing at a huge and consistent pace, and at the same time, the companies that are attached to that innovation are dropping at a consistent pace like a rock. The industries and the companies are showing more proof of concept than ever, and the companies are getting cheaper than ever. It's a very, very interesting dynamic. But today, I simply want to talk to you about Draftkings.

We'll start with what Morgan Stanley has to say. So Morgan Stanley says Draftkings is now too cheap to ignore Morgan Stanley's Allen Said data released by New York last week acted as a reminder that Sports betting and I Gaming is likely to be a very large and profitable market in the Us with eventually only a handful of market share winners, we expect Draftkings to be one of them and with sentiment at an all-time low on near-term loss concerns, we see now as a good time to invest for the long term. Allen wrote in a note to clients. Allen noted that high barriers of entry and the high levels of marketing and promotional spending needed has driven what he calls a very concentrated market that only a few players of scale can really compete in.

He said every state that releases market share data indicates that the top five operators combined have at least 82 market share. Obviously, gambling is an extremely profitable business, at least for the business that's offering the gambling, and so having a huge market share in an entire market is a very, very big deal. And then on a technical level, you are now at about the same price as we were at when it started trading back in April of 2020 and it's off about 75 percent from all-time highs. Meanwhile, the average analyst price target is 43.84 cents and the higher tier ones are at 76..

So as it's under 20, it's very, very important to talk now about why you may want to be bullish on this company. So here are my thoughts. Let's start with the pros. Very, very simple analysis here.

My thesis for Draftkings is that you have in Draftkings one of the winners in a very big winner take all big emerging industry. There was a nice piece from Sportshandle.com and Bloomberg which showed how crazily fast this industry is growing Right now. you look at it. Before the pandemic, you had sports betting getting slowly legalized and growing in certain markets.

But then the pandemic starts and when sports open up again and explodes and new markets grow huge shares. And then of course analysts project that's just a stay-at-home trend. Just like everything on the Internet to stay at home trend, right? It's just gonna go back to where it was pre-pandemic they said. But that didn't happen.

Actually, it expanded substantially more towards the end of 2021 than it did at any other point. And you look at where sports betting is taking place in these markets with booming demand. Well, in most markets, the growth in mobile sports betting is substantially outpacing the growth in retail on-site betting, which again, the Draftkings market is that mobile sports betting market. So anyways, if you're talking about a rapidly growing industry and one that's just really now starting to emerge, well, the online sports betting industry is that.

And that's why I'm excited about the industry. now. Draftkings has a very fast growing business model. 60 year-over-year revenue growth in Q3 revenue growth has been accelerated in each of the previous three years.

Now in terms of users, monthly unique pairs increased by 31 in the last report, and the average revenue per monthly unique payer grew by 38 now in terms of expanding market progress, they just launched in Arizona, Wyoming, and Connecticut and the results have been so far, very, very strong, especially in Arizona. The average active customers per adult in Arizona during the first 30 days was 3.3 times that of the average of other states. In Wyoming's was 1.6 times. If you see these kinds of numbers in some of the more populous states that are on the agenda, that would be a substantial boom for Draftkings in the upcoming years.

The latest market added was New York, which just came this month, and they are already seeing huge betting volumes in the industry and that's just with the early data that we have so far. I think if I was going to quantify the argument in terms of a growth scenario for Draftkings, it would be twofold. Number one, you have the ability of draftkings to grow in the markets that it's already in, and then secondly, it's the ability for draftkings to scale into markets that it's not already in yet in terms of market share. I read a lot of analyst opinions because I'm a masochist and they love to use the C word competition.

Yeah, they could have done really well, but all this competition now is going to come in and it's going to screw this company. And they're saying that with Draftkings, of course. Yet the data suggests something completely different thanks to their talent in acquiring customers and expanding into new markets as well as certain partnerships with like the Nfl if you look at their market share. In the last report, since the Nfl season had began, at that point, Draftking's market share had increased within a very short amount of time in both online sports betting and Igaming.

Now I know it looks like a modest increase, but remember, competition in that area is heating up dramatically and Draftkings isn't losing to the competition as analysts like to say as a short argument, but Draftkings is still expanding market share over the competition, even if they stopped expanding market share. If Draftkings could get a say 33 of the online sports marketing share in all new markets that they expand into, like for example, New York, which has a total market of about a billion dollars, while 33 of a billion dollars in total addressable market is a nice bolster. Imagine what the numbers come out to when you start looking at other markets that could legalize in the next five years, like California, Texas, or Florida. The other thing I like about them is the business model is asset and liability light.

It's kind of a software company. If you think about it, you don't have to have massive, huge, expensive casinos that take up a bunch of real estate and have a ton of maintenance costs and employees. You have a simple mobile platform that can reach people wherever they are. As a smaller pro, I also like that they've been able to adapt to trends.

The Draftkings Nft marketplace sold 20 million plus in gross merchandise value within 120k primary and secondary transactions in Q3 and in sports. I would argue that there's a lot of collectible value to Nfts. I wouldn't be bullish on Draftkings just because of this, but it is a small pro and I do like that they're willing to adapt to this trend. I'd also like to remind you that on February 18th, they do have their earnings which will get an update on their trajectory.

but the biggest pro in my view is simply the price. Now, I'm the type of person that most of my favorite stocks are growth companies. They're going to be very, very violent both sides of the move. You're going to get insane, insane drops during bad environments.

But if they scale like projections say they're going to, then you get massive, massive upsides. The price of sales ratio right now is about seven. Draftkings highest ratio was 48.39 and the median was 26.86 So at 7, you're well below even the median. Now, who knows how much growth stocks are going to get clapped and clamped and destroyed? It could go down more, but if you're looking at it from a value standpoint, it has a lot of value right now.

Well, Cons: Well, it is a growth company after all, so you have some risk factors. You have the profitability problem. I feel like sometimes I'm a broken record when I do the due diligence on some of these stocks, but analysts don't like them because it costs money to build the business and then it costs money to make the business better. Why do you want your business to be better? Please just shoot out all the money to shareholders so we can buy our coffee with dividends.

But anyways, their problem is in order to expand into each new market, they have to spend a lot of money to grow their name in said market. So let's say that you're going into a new market. Let's say Texas legalizes tomorrow and they have to expand. Well, nobody knows about them in Texas, so they have to go and spend a lot of money to get themselves established, adapt to the local regulations and so on and so forth.

Marketing, customer acquisition costs, having a team out there to deal with platform issues, so on, and so forth. The problem that has been really scary in investors though, is that general sales and administrative costs are actually outpacing growth. So as they expand into new markets and bring in new revenue, what is happening? Well, their costs are expanding greater, which is bringing that question of like, well, how are they going to be profitable If the more they expand and the more they actually bring in more revenue, the more of a percentage of that cost take up. Well, the problem with that analysis is that you're only looking at the surface level.

Draftkings management has addressed a clear pathway to profitability. You expand into a new market, and then within two or three years you become profitable. When you're in a new market, it's a huge upfront cost. And because Draftkings is not just already established in some markets, but also establishing itself in new markets all the time, Well, you have this problem where all the data gets kind of overlapped and people miss the bigger picture.

Last quarter, investors totally shrugged off higher business performance and revenue growth because you had higher losses than expected. But the reason for a lot of those losses was because they had launched in Arizona and Wyoming, which again cost a lot of money to do so. I guess the question is, would investors rather have Draftkings not try to establish themselves in new markets If it takes two to three years to become profitable in each market, and Draftkings consistently adds new markets, well, you're gonna have a lot of upfront costs weighing down the overall profitability for a while. But once all of them are established and you continue these market share percentages, you have a cascading business model.

It seems like the logic behind hating growth companies is so stupid. But anyways, of course you do have that risk of, well, maybe Draftkings takes longer. and that's what is scaring investors when looking at these numbers, They think, oh well, they're never going to become profitable because it's taking too much to expand into these markets. Of course you do have that risk of like, well, maybe things aren't going to go as planned and maybe management's decision and maybe management's projection of two to three years of profitability isn't going to pan out.

And it's true, it could be delayed, but I don't think so if you look at markets where they're already very, very successful in and very mature in, like, say, New Jersey. They did achieve their profitability in a little over two years, so if the King of Drafts does follow that same business model, they should have very, very similar success in most other markets may get delayed in some areas where you have a little bit more gray areas in terms of regulation and advertising costs are a little bit higher, but still. Now the other con is the ethical line. Some investors and funds won't invest in a gambling stock because they see that as a net negative for society.

This is something that does hold back capital by some funds, but I don't think it's a big problem. I think the problem is more of a personal choice and more of a personal nature. I look at Draftkings as an entertainment stock. It's fun to bet on sport outcomes, and it's a game.

that's really what it is. and you have a little bit of real money in there. And it's a gamble and it adds some fun to it. The other problem, of course, is legalization.

uncertainty. Legalization has expanded dramatically in the last few years, and you have major markets that if they flipped to legal like your California, your Texas, your Florida would be Huge. huge deals for draftkings, but it's unclear when or really if they will legalize. I think that the overall trajectory is very, very clear, and New York flipping to legal is a big big step in all these other ones flipping to legal, especially California.

But honestly, even right now, there's plenty of markets for draftkings to continue to expand into, and when these become legal, that's a huge icing on the cake. Anyways, that's my overall thought process on draftkings. Truth is, I think the industry is very, very exciting. I think the company has a very, very strong chance of being one of the winners in a winner-take-all industry.

but at the same time I recognize that we're in a bad, bad growth environment right now. The pro of that is hey, you're going to get a very, very very good deal on the stock. The con is, who knows When you're going to get into a more favorable environment where you allow innovative companies to start getting accurate funding, it's a hard thing to call. I've talked about my different scenarios, but all I know is I'm looking at this company.

It looks like a historical good deal and that's all I have to say about it. Also, Draftkings is one of our price target plays in Ziptrader U. If you do want our full price target list of all of the stocks that I have high conviction in, many of which I believe have a lot of potential over the upcoming years, well, you can get those by joining our lifetime access to Ziptraderu. Aside from the full price target list, you'll also get access to our step-by-step lessons, our private chat, and of course our infamous daily morning briefings.

So if you do want to check that out, I will put a link to it below alongside a new coupon code that will get you 80 bucks off before checkout. Plug aside, have a great one and I'll see you in the next video.