Posted on: December 30, 2022, 03:21h.
Last updated on: December 30, 2022, 03:29h.
Cathie Wood’s ARK Investment Management remains bullish on DraftKings (NASDAQ:DKNG) stock, having added nearly 137,000 shares of the tumbling equity on Dec. 29.
That purchase was valued at approximately $1.5 million based on the gaming equity’s Dec. 29 trading range. All of ARK Invest’s Thursday DraftKings purchase was directed to the ARK Fintech Innovation ETF (NYSEARCA:ARKF). DraftKings is now the tenth-largest holding in that exchange traded fund (ETF), commanding a weight of 4.33%.
The Florida-based asset manager also holds shares of DraftKings in the ARK Innovation ETF (NYSEARCA:ARKK) — the firm’s flagship ETF — and the ARK Next Generation Internet ETF (NYSEARCA:ARKW).
ARK was an early buyer of DraftKings following the gaming company’s debut as a standalone public company. As of the end of the third quarter, Wood’s ARK Invest was the second-largest institutional owner of DraftKings stock, trailing only fund giant Vanguard.
ARK Averaging Down with DraftKings
Growth stocks, of which DraftKings is one, were drubbed in 2022 due in large part to rising interest rates. The Federal Reserve boosted borrowing costs seven times in an effort damp the highest rates of inflation in four decades.
The problem with that scenario for growth investors, be they retail market participants or pros such as ARK, is that higher interest rates diminish the appeal of growth companies’ future cash flows. Specific to DraftKings, the sportsbook operator’s status as an unprofitable firm isn’t appealing in a rising rate environment. Rather, the gaming company’s money-losing ways are unattractive against the current macroeconomic backdrop.
Still, ARK Invest has been a steady buyer of DraftKings over the course of 2022 despite the stock shedding 59%. That amounts to averaging down — a strategy used to lower a shareholder’s cost basis in a declining stock.
Indeed, the ETF issuer isn’t fearful of doing that with DraftKings. Last month, ARK added to its DraftKings position across several funds following the stock’s worst intraday performance on record. That’s after the Boston-based company issued cautious 2023 guidance, including wider-than-expected earnings before interest, taxes, depreciation, and amortization (EBITDA) loss. DraftKings forecasts an EBITDA loss of $475 million to $575 million next year, far worse than the consensus estimate of $426 million.
ARK Not Afraid to Add to Declining Positions
Wood has often said her timeline for investments is five years or longer, because it often takes disruptive growth companies several years to mature and become profitable.
This year, that thesis is being tested across nearly all of the firm’s equity positions, not just DraftKings. For example, ARK added $5.5 million worth of ailing cryptocurrency exchange operator Coinbase (NASDAQ:COIN) to ARKF this week. That stock lost 86.22% in 2022.
ARK’s other gaming positions include sports betting data provider Genius Sports (NYSE:GENI) and Endeavor Group Holdings, Inc. (NYSE:EDR), the owner of the OpenBet sports wagering business.