DraftKings: A Bargain in the High-Growth Sports Betting Sector

The stock of DraftKings (NASDAQ: DKNG) has plummeted 45% from its March 2021 peak, a decline fueled by a mix of operational challenges, including heavy marketing costs and a string of "unlucky" NFL betting outcomes that cost the company $175 million in 2024. Yet, this selloff has created an opportunity for value-in-growth investors to assess a company poised to capitalize on the explosive expansion of the U.S. sports betting market. With DraftKings forecasting its first annual profit in 2025 and a revised revenue guidance of $5.9 billion to $6.1 billion, the stock's current valuation appears increasingly attractive relative to its long-term growth trajectory.

A Sector in Expansion, A Company in Transition

The U.S. sports betting industry is undergoing a seismic shift. Since the Supreme Court's 2018 decision to legalize sports betting in individual states, the sector has seen a surge in adoption. By 2029, U.S. sports betting users are projected to grow by 45% from 2024 levels, creating a fertile ground for companies like DraftKings, which dominates the market with its Sportsbook and iGaming platforms. DraftKings' Q3 2025 results underscore this momentum: revenue rose 4% year-over-year to $1.144 billion, driven by a 17% increase in Sportsbook handle and a 3% rise in average revenue per user (ARPMUP) to $106.

The company's financial trajectory is equally compelling. DraftKings now expects Adjusted EBITDA of $450 million to $550 million for 2025, a stark contrast to its $507 million loss in 2024. Analysts project net income of $214 million for 2025, signaling a transition from growth-at-all-costs to profitability. This shift is critical for a SaaS-like business model, where recurring revenue and customer retention are paramount. DraftKings' 3.6 million average monthly unique paying customers (MUPs) in Q3 2025, a 2% year-over-year increase, highlights its ability to scale sustainably.

Valuation Metrics: A SaaS-Style Bargain?

DraftKings' current valuation appears disconnected from its fundamentals. The stock trades at a forward P/E ratio of 31.95, a discount to the median 7.0x revenue multiple for public B2B SaaS companies projected at 7.0x revenue multiple. While DraftKings is not a traditional SaaS firm, its recurring revenue streams-driven by Sportsbook and iGaming-share similarities with subscription-based models. For instance, its 4% revenue growth in Q3 2025 and 34% projected year-over-year revenue increase to $7.5 billion align with the metrics that justify high SaaS valuations.

The Rule of 40, a key SaaS valuation benchmark, further supports this argument. While DraftKings' Q3 2025 Rule of 40 score was -7.1% (due to a -11.1% EBITDA margin), its improving EBITDA and revenue growth suggest a path to a positive score. By 2025, the company's projected 34% revenue growth and $214 million net income could push its Rule of 40 score into the 40+ range, unlocking higher valuation multiples.

Risks and Realities

No investment is without risk. DraftKings' business model remains capital-intensive, with high customer acquisition costs and regulatory uncertainties in the sports betting sector. Its Q3 2025 EBITDA loss of $126.5 million underscores the need for continued operational discipline. However, the company's ability to improve its sportsbook hold percentage and expand into new markets (e.g., DraftKings Predictions)) suggests a path to margin expansion.

Moreover, the SaaS industry's valuation multiples are polarized: top performers command 14.2x revenue, while underperformers trade at 1.9x. DraftKings' position in the high-growth, capital-intensive segment of gaming means it must demonstrate consistent monetization and low churn to justify a premium. Fortunately, its 2% MUP growth and 3% ARPMUP increase indicate strong customer retention, a critical factor in SaaS valuations.

Conclusion: A Long-Term SaaS Play in Disguise

DraftKings' 45% stock decline has created a compelling entry point for investors who recognize its alignment with the SaaS playbook-recurring revenue, scalable customer acquisition, and a growing market. While the company's current Rule of 40 score and EBITDA margins are suboptimal, its 2025 guidance and the $5.9 billion to $6.1 billion revenue forecast suggest a transition to profitability. In a sector expected to grow by 45% in users by 2029, DraftKings' market leadership and improving financials position it as a high-conviction value-in-growth opportunity.

For those willing to look beyond short-term volatility, DraftKings represents a rare intersection of discounted valuation and long-term sector tailwinds-a SaaS-style bargain in the world of sports betting.