DraftKings shares fell as much as 21% in Friday morning trading after the company reported third quarter earnings.
In what’s become a trend for the Boston-based sportsbook, the quarterly earnings beat estimates on both revenue and earnings per share, and DraftKings slightly improved its full-year guidance, yet the stock fell in the immediate aftermath of the number being released.
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For the three months ending in September, DraftKings reported revenue of $502 million, beating consensus estimates of $436.4 million. The company also reported loss per share of $1.00, beating estimates of $1.04. The stock (NYSE: DKNG), which closed Thursday at $15.67, fell as much as 18% in pre-market trading in the 45 minutes after results were announced.
The third quarter has often been volatile for DraftKings because it contains just a few weeks of the all-important NFL season, the most-bet-on games on the U.S. sports calendar. Last year, for example, the company reported a $50 million revenue shortfall in the NFL’s first three weeks, followed by a $25 million revenue boost in Week 4. This year’s early NFL slate was full of upsets, which is typically good for sportsbooks.
One potential reason for investor concern: The company unveiled its first guidance for next year, which includes adjusted EBITDA losses of $475-$575 million (for reference, the guidance for this year is $780-$800 million). CEO Jason Robins has said that DraftKings typically assumes it will be profitable in each state on a three-year timeline, which means profitability for the company is likely at least a few years away, depending on which new states legalize sports betting and when.
The company may also be running into broader market forces, where investors appear less interested in growth companies that are in spend-now mode. “[DraftKings] continues to trade more on rising interest rates that are penalizing longer duration assets without near-term earnings,” Oppenheimer analysts said Friday in a note, which designates DraftKings as ‘Outperform.’
DraftKings’ earnings reports give a quarterly update on the company’s active customer base. Average month unique payers in the quarter was 1.6 million, up from 1.5 million in the second quarter, and 1.34 million from the third quarter of last year. That number is expected to grow quarterly as more states legalize sports betting, and launched markets become more mature. Average revenue per user was $100, down from $103 last quarter and up from $47 in Q3 of 2021.
Another metric closely watched by investors: the company’s marketing spend. U.S. operators are still in a rush to grab new customers, and that competition is expensive. DraftKings’ “sale and marketing” rose to $373 million in the second quarter (it was $197 million last quarter, and $304 million in Q3 of last year). So far this year, DraftKings has spent $840 million in sales and marketing.
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