DraftKings is reacting to another underwhelming 7.0% hold rate (take rate) report from New York last week. The company’s guidance is based on a roughly 10.0% hold rate, thus marking the second straight week of disappointment for the important state. If New York looks like the rest of the USA (not a given), then this will likely impact quarterly revenue and profit results for Q4. Hold rate has a directly material impact on its financials.

To me, this is actually ideal. It’s a byproduct of bad luck more than anything, and that is not permanent or structural. It’s short-term noise. There is every reason to believe that a better parlay offering will close the hold rate gap between it and FanDuel over time (FanDuel closer to 12%). And? There’s zero reason to believe that process will be linear and without bumps in the road like this one. If I’m an investor looking forward and seeking out better risk/reward, I want to pick one of two leaders with the most hold rate progress left to enjoy. That’s how revenue and profit growth can greatly lead volume growth… and that’s what DraftKings should provide in the coming years.

DraftKings now sports an $18 billion market cap and is poised to go from $260 million in EBITDA this year, to $950 million next year. It’s also expected to generate nearly $900 million in free cash flow next year. The company continues to outperform on new customer acquisition, continues to maintain stellar market share in a high-growth sector and continues to do both of those things while slashing marketing expense. This is one of two juggernaut sports gambling brands in the making, and at this price tag, I had to add. I made a very small deposit to fund this purchase.

I am working on making this portfolio screenshot look a lot easier to read.