Baron Funds, an investment management company, released its “Baron Discovery Fund” first quarter 2023 investor letter. A copy of the same can be downloaded here. The fund was up 11.20% in the first quarter compared to the Russell 2000 Growth Index’s return of 6.07%. The strong performance of holdings in the Information Technology (IT), Industrials, and Consumer Discretionary sectors and the Fund’s higher exposure to the top-performing IT sector led the fund to outperform in the quarter. In addition, please check the fund’s top five holdings to know its best picks in 2023.
Baron Discovery Fund highlighted stocks like DraftKings Inc. (NASDAQ:DKNG) in the first quarter 2023 investor letter. Headquartered in Boston, Massachusetts, DraftKings Inc. (NASDAQ:DKNG) is a digital sports entertainment and gaming company. On May 15, 2023, DraftKings Inc. (NASDAQ:DKNG) stock closed at $23.49 per share. One-month return of DraftKings Inc. (NASDAQ:DKNG) was 12.28%, and its shares gained 69.48% of their value over the last 52 weeks. DraftKings Inc. (NASDAQ:DKNG) has a market capitalization of $11.218 billion.
Baron Discovery Fund made the following comment about DraftKings Inc. (NASDAQ:DKNG) in its Q1 2023 investor letter:
“We re-initiated a position in former Fund holding DraftKings Inc. (NASDAQ:DKNG), a leading online sportsbook, digital casino, and daily fantasy sports operator. DraftKings’ mobile applications offer consumers the ability to wager on a wide variety of sporting events and play hundreds of real-money casino games. The company has spent the past three years building a proprietary technology stack that improves the customer experience and delivers best-in-class breadth of bet types (such as parlays, same-game parlays, and player props). State-level online sports betting (OSB) and iCasino legalization, along with a multi-year consumer adoption timeline in active states, has supported a 90% revenue growth rate for DraftKings since 2020. The opportunity for OSB legalization remains significant, with under 50% of the U.S. population currently having legal mobile sports betting. We expect 65% to 80% of the population will eventually have access to OSB. ICasino is currently legal in just seven states representing roughly 13% of the population. ICasino product adoption in legalized states has been robust, with the average user spending twice as much as a sports bettor. While the pace of legalization for iCasino has been slower, we believe additional states will pass regulation in the coming years.
As U.S. states began to legalize sports betting, the DraftKings management team moved quickly to build widespread brand awareness. DraftKings is the #2 operator in both OSB and iCasino by a wide margin, and has demonstrated improving market share trends across almost all states. When a new state legalizes sports betting, DraftKings has a first mover advantage as many of its customers are converted from the DraftKings daily fantasy sports offering. The quality of their sportsbook product along with increasingly targeted promotional spending results in strong customer retention and high lifetime values. In states where iCasino is legal, DraftKings can cross-sell OSB customers. DraftKings’ scale and product advantages are creating a flywheel that will enable the company to continue to out-invest the competition in acquisition marketing, retention, and research and development. The high barriers to entry are resulting in a consolidated industry that will eventually lead to a highly profitable business. This is evidenced by older-vintage state contribution margins that are already approaching 40%. Longer term, we believe DraftKings can generate EBITDA margins between 20% and 30% with strong free-cash-flow conversion.”
DraftKings Inc. (NASDAQ:DKNG) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 32 hedge fund portfolios held DraftKings Inc. (NASDAQ:DKNG) at the end of the fourth quarter which was 34 in the previous quarter.
We discussed DraftKings Inc. (NASDAQ:DKNG) in another article and shared the list of best entertainment stocks to buy in 2023. In addition, please check out our hedge fund investor letters Q1 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
