DraftKings Shares Jump on Revenue Beat, Revised Guidance

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DraftKings shares jumped in trading on Friday after the company reported second quarter earnings that exceeded analyst estimates, including a revised projection of losses for the 2022 fiscal year.

For the three months ending in June, DraftKings had revenue of $466 million, beating consensus estimates of $436 million. The company also reported loss per share of $0.50, beating estimates of $0.83. The stock (NYSE: DKNG) rose as much as 18% in trading Friday morning.

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The company also slightly raised the midpoint of its full year revenue guidance, and it improved its 2022 adjusted EBITDA projections from a loss of $810 million to $910 million to a loss of $765 million to $835 million. CEO Jason Robins has said in the past that DraftKings projects profitability on a three-year time horizon in each new market.

The stock spike is a welcome change for the company, which has delivered revenue beats in a number of its recent quarters but typically saw the stock price tumble. Those dips have been widely attributed to the high cost of customer acquisition, a hot topic across the industry, as DraftKings and its competitors all search for the right balance of marketing/promotions, which add to their user base but drag on their bottom line.

DraftKings stock has risen over the past few weeks after a ten-month slide. Shares ended trading Thursday at $16.36­—up from $11.22 in mid-July, but down significantly from the 52-week high of $64.58. That growth tracks with a broader mini-rebound for the U.S. sports betting industry. There are nine betting-related stocks in Sportico’s JohnWallStreet Sports Stock Index, including DraftKings, and as of last week, all had risen over the prior month.

DraftKings continues to dramatically scale its business year-over-year, but those numbers can be misleading because of recent acquisitions and how quickly its addressable market changes depending on the legislative schedule of individual states.

That said, one metric is closely watched by investors—the size of the company’s active customer base. Average monthly unique payers in the quarter was 1.5 million, down from 2 million in the first quarter, and up from 1.1 million in the second quarter last year. Average revenue per user, was $103, up from $67 last quarter and up from $80 in Q2 of 2021.

Another important metric is DraftKings’s marketing spend. Every new state means a new group of potential users, and customer acquisition can be expensive. The company’s “sales and marketing” jumped to $197 million in the second quarter (it was $170 million in Q2 of last year and $321 million in Q1 of 2022).

This is a concern for everyone in the industry. Earlier this week Caesars Entertainment CEO Thomas Reeg said his company (Nasdaq: CZR) had reabsorbed “almost a half-billion dollars” in money originally earmarked for marketing and customer acquisition.

DraftKings is now in its third quarter, which can be particularly volatile because it holds just a small portion of the NFL season, big-volume weeks where the outcome of games, particularly large wins by favorites, and the small sample size can be particularly good (or bad) for the sportsbook. Last year 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 alone.

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