I recently wrote about CrowdStrike’s forward multiple, how it was very stretched and how I was willing to let it be stretched considering how special of a company this is. Well? Since then, the multiple has expanded by another several turns, with the 2024 EBIT multiple now pushing 100X. The EBIT growth multiple is now pushing 3x.

I am not willing to exit this company to try to time up a better entry. Its combination of growth, scale, profits, leverage, runway, leadership and balance sheet health is one of one in public markets. Still, there is a limit to how expensive I am willing to let things get before I decide to lighten up a tad.

That decision happened today. I sold 20% of my CrowdStrike stake. I’ve allocated that cash to Starbucks, Nu, and DraftKings. Starbucks and Nu are just planned purchases to build new positions. DraftKings is too, but there was a great regulatory development this week that has boosted my already strong conviction in this name.

A few weeks back, I wrote about Illinois passing a progressive tax rate for sports gambling. I wrote about the impact this will have on Flutter and DraftKings, and why it was not ideal. The financial burden from the decision will be small, but the fear was about this news turning into a domino effect in other states. This week, New Jersey’s budget proposal was finalized. And? There is nothing on a progressive sports gambling tax rate included in the plans. New Jersey was arguably the riskiest state to follow in the footsteps of Illinois.

This is why DraftKings has had such a fun two days. The other news out of Florida this week (on its Supreme Court not hearing a challenge to sports gambling legality) is not relevant. Hard Rock is the only legal book there.

Tax rates for sports gambling will rise. States need to plug budget deficits. This is the perfect place to do it. That’s ok. DraftKings thrives in high tax states like New York. These rates have a way of manufacturing inefficiency that the little guys can’t overcome, which accelerates consolidation. A gradual step-up in tax rates as a policy is what investors should want states to avoid. This penalizes DraftKings and Fanduel for being successful. Good news from New Jersey. I’ll talk about this more on Saturday.

I placed the transactions about 5 minutes ago. Here’s the updated portfolio: