DraftKings Takes Advantage Of 'Favorable Market Conditions' With Share Offering

Online sports betting company DraftKings Inc DKNG announced Tuesday afternoon a 14-million share offering to take advantage of "favorable market conditions," according to Oppenheimer analyst Jed Kelly.

What Happened: DraftKings expects to raise $500 million to $525 million in net proceeds as the company wants to "shore up" its balance sheet ahead of more states welcoming online sports betting and iGaming, Kelly wrote in a note.

After the capital raise, DraftKings will have $1.1 billion to $1.2 billion in cash and the company expects to spend $876 million on sales and marketing over the next three years.

The company also said insiders are selling 19 million shares.

Why It's Important: DraftKings could allocate some of its cash to seek acquisition or investment opportunities, Kelly wrote. DraftKings may consider a media play, similar to Penn National Gaming, Inc PENN buying a stake in Barstool Sports.

Meanwhile, the competitive landscape is intensifying as Ireland-based rival Flutter raised the equivalent of around $1 billion to seek new U.S. opportunities through its Fanduel and Fox Bet brands.

What's Next: In conjunction with the capital raise, DraftKings guided its second-quarter pro forma revenue to be $70 million to $75 million, which is ahead of the analyst's estimate of $48 million.

Upside versus expectations is likely coming from higher iGaming revenue and pent-up demand for sports betting as live events like UFC, Nascar and golf returned, the analyst wrote.

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