DraftKings (NASDAQ:DKNG) has been in a free fall since peaking on Sep. 9. at $63.67 per share. As of Jan. 13, it was down to $24.24 per share. This means that DKNG stock is below the price of $27.47 where it closed at the end of 2021.

So, in effect, the stock has declined $39.43 since its peak on Sep. 9, a drop of 61.9% in just four months. And this is after the company produced its third-quarter (Q3) earnings on Nov. 5.

Moreover, since its all-time peak during 2021, closing at $71.98 on Mar. 19, DKNG stock is now down 66%. That means that it has lost 2/3rds of its value in the past nine months.

Something is wrong here. As I have written before, I think it is because the market does not like the company’s ongoing losses and its potentially dilutive acquisition deal.

Where Things Stand With DraftKings

Although revenue rose 60% year-over-year (YOY) to $213 million in Q3, its losses mounted, as well. DraftKings reported that its losses for the quarter were $545 million, or over twice its revenue.

Even after adjusting for non-cash expenses and certain other costs, the company’s Q3 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was negative $313.6 million. This is also higher than revenue. Moreover, for the past nine months, its ongoing EBITDA loss was $548 million.

Most of these losses come from its huge marketing and technology expenses. This is in order to gain market share in the online and in-casino gambling arenas.

For example, in the last quarter, DraftKings spent $303.7 million on marketing and $65.2 million on technology. Combined, this $368.9 million in growth costs work out to 173% of its revenue ($213 million).

Cash Burn and Cash Balances

And don’t forget these costs are on top of its gambling, overhead, and other costs (cost of revenue was $170.7 million).

To put it bluntly, DraftKings is bleeding cash. In the last nine months, according to its cash flow statement, the company burnt through $366 million. As I wrote last month, this works out to an annual cash burn rate of $488 million.

So, it’s a good thing that DraftKings’ unrestricted cash was $2.394 billion at the end of the quarter. At this rate, it can burn half a billion in cash flow each year for another 5 years or so.

But once it takes on Golden Nugget Online Gaming (NASDAQ:GNOG) and its losses, that cash burn will increase. For example, GNOG reported that its nine-month operating cash flow losses were $29.5 million as of Sep. 30. That will take the total cash burn over $500 million next year.

Where This Leaves DKNG Stock Going Forward

Analysts want to start seeing some prospect of positive cash flow going forward. At a minimum, they will want to see if the GNOG acquisition eventually has the prospect of helping turn the company profitable.

The good news now is that DraftKings has already provided guidance for its 2021 revenue of $1.26 billion. In addition, it has given 2022 revenue guidance of $1.7 billion to $1.9 billion. That implies a sales growth of 42.9% over the next year, using the midpoint.

At today’s market valuation of $9.854 billion, this puts DKNG stock on a forward price-to-sales metric of about 5.5 times at the midpoint.

To say the least, that is not a cheap valuation. However, it leaves room for the company to grow into the valuation, assuming revenue continues to rise 40% to 50% a year.

What to do With DKNG Stock

At this point, most investors will want to see how its Q4 revenue and cash burn work out. If it looks like cash burn is increasing, given its huge marketing and technology costs, the market may not be patient with the stock price.

On the other hand, its revenue growth is so high there is a good chance that cash flow could become positive sooner than expected. On balance, most investors will wait to accumulate more shares until it looks like there is some light in the cash flow tunnel.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.