DraftKings Fails To Win Investors With Q3 Results, Guidance: Could The Company Be Left Behind Over Peers Closer To Profit?

Zinger Key Points
  • DraftKings reports third quarter revenue of $502 million, up 136% year-over-year.
  • DraftKings raises its full-year fiscal guidance.

Sports betting and online casino company DraftKings Inc DKNG reported third-quarter financial results before market open Friday. Here are the key highlights and why shares are dropping.

What Happened: DraftKings reported third-quarter revenue of $502 million, up 136% year-over-year. The revenue total beat a Street estimate of $437.2 million, according to data from Benzinga Pro.

The company reported B2C revenue of $493 million for the third quarter, up 161% year-over-year. The growth was led by customer acquisition and retention, additional launches in states and strong hold rates from the NFL season.

The company had 1.6 million monthly unique payers in the third quarter, up 22% year-over-year. The average revenue per monthly unique payer was $100 in the third quarter, up 114% year-over-year.

“DraftKings had a very strong third quarter. Our team continued to drive top-line growth through highly effective customer engagement and compelling product and technology enhancements while remaining focused on our path to profitability,” DraftKings CEO Jason Robins said.

Robins said the company focused on a balance between top-line growth and operating efficiencies in the fiscal year.

What’s Next: DraftKings raised its full-year fiscal guidance. The company expects 2022 revenue to be in a range of $2.16 billion to $2.19 billion, up from a prior range of $2.08 billion to $2.18 billion. The Street estimate is $2.14 billion according to Benzinga Pro.

The company expected full-year adjusted EBITDA to be a loss of $800 million to 780 million, improving the prior range of a loss of $835 million to $765 million.

Guidance for fiscal 2023 was revenue of $2.8 billion to $3.0 billion, up 33% year-over-year at the mid-point. The company expected adjusted EBITDA to be a loss of between $575 million and $475 million.

DraftKings was live in 18 states for mobile sports betting at the end of the third quarter and live with iGaming in five states.

The company expects to launch in Maryland in the fourth quarter of 2022, Ohio and Massachusetts in the first quarter of 2023 and in Puerto Rico in the third quarter of 2023.

Related Link: DraftKings Stock A Tactical Opportunity In Sports Betting Ahead Of NFL Season 

Path to Profits: DraftKings focused on top-line growth for years with highly promotional efforts in the form of advertising and promotional bets. The company now appeared to have a larger focus on a path to profitability.

“We continue to be confident that we will achieve positive adjusted EBITDA in the fourth quarter of 2023 based on the visibility we have into expected state launches,” Robins said.

Portions of the company’s guidance were based on the launch of several states, which could provide little room for setbacks or delays.

“DraftKings revenue and adjusted EBITDA guidance for fiscal years 2022 and 2023 include all the jurisdictions in which the company was live as of November 4, 2022, as well as jurisdictions in which DraftKings reasonably expects to launch during the guided periods,” the company said.

The company reported on its earnings call that it expected to be adjusted EBITDA positive in 10 of the 18 states.

An early call out for fiscal 2024 had Robins saying the company could be adjusted EBITDA positive for the full fiscal 2024.

While DraftKings planned for positive adjusted EBITDA in the years ahead, several of its peers might already be there.

Penn Entertainment Inc PENN put a higher emphasis on profitability over promotional efforts for years for its Barstool sports betting segment. Penn called for the Barstool segment to have positive adjusted EBITDA in the fourth quarter of 2022.

FanDuel, owned by Flutter Entertainment ADR PDYPY, had positive EBITDA in recent quarters and is expected to be profitable for the full fiscal 2023.

The sports betting segment could see a shift from high revenue growth and high promotional efforts to gain users to a focus on profitability. DraftKings could have a late start in this effort and investors might look to take stakes in the companies closer to profitability instead.

DKNG Price Action: DraftKings shares are down 21.60% to $12.729 on Friday morning.

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Photo: Wirestock Creators via Shutterstock



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