5 Nov: DraftKings hit by NFL results

Nov 05, 2021

Welcome. This afternoon we report on the earnings call and analyst reaction to DraftKings below street consensus numbers this afternoon.

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DraftKings Q3s

The top line

Revenue of $213m, up 60% YoY but net losses climbed 37.7% to minus $545m while adj. EBITDA losses rose 59% to $313.6m. Net losses for the nine month stood at $1.2bn.
B2C revenue came in at $189.1m and B2B at $23.7m (down 20% YoY).
Guidance for FY21 was narrowed to between $1.24-1.28bn and includes $25m of negative revenue impact from customer-friendly sporting results.
The implied guidance for Q4 is $437m.
Guidance for 2022 issued with revenue forecast at between $1.7-1.9bn.
DraftKings now live with OSB in 15 states and in five with igaming.

The Fall: DraftKings’ share price fell over 5% in early trading after it released what one analyst immediately suggested were “lower than expected” revenues. Indeed, street consensus expected revenues of ~$236.9m, the company said the shortfall was due to unfavorable NFL results.

Backing away: Looking at the ending of talks with Entain, Robins said that global expansion “is one of the pillars for long-term growth”. He suggested that it was only because of a leak to the press that the talks had to go public due to UK takeover rules; and in a backhanded compliment to Entain, suggested it was still interested even though it has a “lower growth trajectory”. “I think we will continue to look at things out there,” he added.

Deep pockets: Comments elsewhere this week have suggested some of the heat might have been taken out of the competitive environment since the start of the NFL season and Robins somewhat concurred. “There has been a little bit of a pullback,” he suggested. Note, DraftKings marketing expenses in Q3 rose to $303.6m, up 49%. But he added that the experience in new states such as Arizona, where the company said customer acquisition costs had been “tremendous”, showed that high spending elsewhere could be a benefit.

“We just follow the data; we spend when we see the money coming in, that is really our approach,” Robins said. “Yes, there is more competition but it is also growing the market faster.”

Loss leader: Asked whether he was worried about some competitors suggesting that sports-betting could simply be a loss-leader for an igaming operation, Robins was dismissive.

“It doesn’t appear to be a strategy that makes sense,” Robins suggested. “I think sports-betting on its own is going to be a very profitable business for us. And most states don’t have igaming right now. So we really have to feel we can run the sports-betting vertical at a profit.”

Walk, don’t walk: Robins wouldn’t be drawn on the rumors surrounding New York and whether DraftKings will be among the winning consortia but he did suggest that if awarded a license the company would achieve long-term profitability. “There are a lot of levers we can pull,” he said “I don’t think anyone would want to run unprofitably long-term in any state.”

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