Exchange-traded fund invests in DraftKings despite double-digit stock price slide
Cathie Wood’s ARK Investment Management firm agrees share purchase on US sportsbook operator amid 28% drop in value of shares following Q3 financial results
US-based investment fund manager ARK Investment Management increased its holdings of DraftKings stock by 1.6 million shares on the same day the stock plunged 28% in value on the Nasdaq.
ARK, managed by Cathie Wood, is a long-standing holder of DraftKings stock, with Exchange Traded Funds (ETF) operated by ARK featuring more than 24.7 million shares in the business.
ARK is the second-largest institutional shareholder in DraftKings, just behind Vanguard Group, which holds a position of 32.5 million shares.
On Friday, Wood’s ARK management company bought 1.6 million shares in DraftKings stock, with purchases spread over three funds.
A total of 1.36 million shares were added to the New York Stock exchange-listed ARK Innovation ETF fund, which functions as ARK’s main flagship exchange traded fund.
Of the remaining positions, 228,186 DraftKings shares were added to ARK’s Next Generation Internet ETF, while 87,907 shares were moved into the ARK Fintech Innovation ETF.
Exchange traded funds have a diverse range of holdings within their makeup, with the emphasis on diversity to ensure a balanced return to investors over non-index traded funds.
In a note of justification on the transaction, ARK pointed to potential market launches as green shoots for potential recovery of the business, despite what it called a “larger-than-expected” EBITDA loss for 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,” ARK added.
DraftKings’ stock plunged in value by 27.82% in trading on the Nasdaq on Friday, falling from an opening price of $13.25 per share to just $11.31 per share at market close.
More than 78.7 million share transactions took place on Friday, an increase of 257% on the volume of transactions which took place on Thursday, as investors looked to sell stock while others, including Wood, purchased wider positions at lower prices.
It came as DraftKings announced its Q3 2022 financial results, with the US sportsbook operator reporting a 136% year-on-year (YOY) rise in its revenue to $502m.
The Nasdaq-listed firm revealed a 17% decrease in net losses, which reduced to $450.4m during Q3 2022.
DraftKings’ adjusted EBITDA losses shrunk during the Q3 period, falling 15% YOY to $264.2m, down from adjusted EBITDA losses of $313.6m in 2021.
Pro forma costs, inclusive of sales and marketing, product and technology, and general administrative costs, amounted to $584m, a figure down by just under 1% from that reported during Q3 2021.
Following the results, DraftKings raised its fiscal year 2022 revenue guidance to a range of between $2.16bn and $2.19bn, from a previous range of between $2.08bn and $2.18bn, announced in Q2 and equating to YOY growth of 67% to 69%.
In tandem with the revision of revenue targets, DraftKings amended its adjusted EBITDA guidance figures to a loss of between $780m and $800m in 2022, from a prior guidance figure of between $765m and $835m.