DraftKings (DKNG  ) went public on April 24 with a $6 billion valuation. The company started in 2012 by piggybacking on the boom in fantasy sports by offering daily fantasy games that exploded in popularity. It was a combination of traditional fantasy sports and sports betting that was addicting for its users while enhancing their enjoyment of games.

iGaming

Until a few years ago, sports betting was only legal in Nevada. This is changing due to public interest, changing norms, and states looking for new sources of revenue. Currently, it's legal in 15 states and expected to become legal in 16 states by the end of next year. At one time discussion of sports gambling was taboo, now it's become a part of network coverage of sports, and major leagues are in partnership with casinos and sports betting books.

The third major source of revenue for DraftKings is online gambling. It's already operating an online casino in Pennsylvania which offers slots, card games, and table games. As more states legalize online gambling and sports betting, DraftKings is in a good position to navigate each states' unique regulations, although it faces stiff competition from other casinos and online companies.

Based on its IPO prospectus, the company expects the combination of online gambling and sports gambling to become the bulk of its revenue in the coming years. Its revenue is basically the difference between what players bet, and how much the company pays out. Two major costs are special promotions to lure new customers and loyalty programs to retain frequent customers.

Going Public

Since debuting through a reverse-merger, DraftKings' stock has already more than doubled. By traditional valuation measures, it's overvalued with its $16 billion market capitalization and losses. However, investors are probably currently focused on the company's growth potential given the potential growth of the market and expansion opportunities. Sports betting is expected to become a $20 billion market in the next five years.

In 2019, the company reported a loss of $147 million on $334 million in revenue, while in 2018, it lost $77 million with $226 million in revenue. DraftKings' current strategy is to focus on growth. Entering new markets is expensive and burdensome and then they have to spend heavily on marketing and promotions to get customers and retain them. After that, it believes it can improve margins and become profitable in those markets.

DraftKings' two major metrics are monthly unique players and average revenue per monthly user. In 2019, it had 684,000 monthly unique players which grew 13% compared to the previous year. Average revenue per monthly user was $39 in 2019 which was an increase from $31 in 2018. Both figures are expected to grow by more than 10% in 2020.