DraftKings Q1 Update: It’s All About Guidance, Profitability Outlook

Posted on: May 3, 2023, 06:11h. 

Last updated on: May 4, 2023, 12:09h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

DraftKings (NASDAQ: DKNG) stepped into the earnings confessional on Thursday after the close of US markets. With the company already having issued 2023 guidance, analysts and investors will be focusing on any adjustments to those forecasts and the possibility of a shorter time line to profitability.

DraftKings Q1
Inside a DraftKings office, above. Analysts see a potential upside to the company’s Q1 forecasts. (Image: Wall Street Journal)

For the first three months of 2023, DraftKings is expected to report revenue of $705 million, with earnings before interest, taxes, depreciation and amortization (EBITDA) loss of $261 million, or 75 cents a share. Sell-side analysts estimate the gaming company will say it had 2.59 million active monthly users that generated revenue per monthly unique payer of $89.86 in the January quarter.

Meeting and exceeding those numbers is critical, because the legislative outlook for iGaming and sports wagering in 2023 is rapidly dimming.  No states are expected to roll out online casinos, and only Kentucky lurks as a possible addition to the live and legal sports betting roster — one joined by Massachusetts and Ohio earlier this year.

We now forecast only Kentucky (1.4% of U.S. 21+ population) going live in Q4:23 for combined 2023 new state launches (ex-Puerto Rico) of 7.1% vs. our prior 11.4% estimate (moving North Carolina, Vermont, and Missouri to 2024),” wrote Cowen analyst Stephen Glagola in a note to clients today.

He has an “outperform” rating and a $27 price target on the stock.

DraftKings Needs Catalysts

Giagola added that Georgia isn’t likely to have live regulated sports wagering until 2025, and Texas won’t join that party until that year or 2026.

In other words, DraftKings needs to give investors a reason to cheer. Without state legislation, those catalysts largely boil down to increased revenue guidance, and more importantly, a tighter time line to profitability. Currently, expectations are in place that the gaming company could break even on an EBITDA basis later this year and generate positive earnings later in 2024.

“We forecast a slight Q1 revenue and Adj. EBITDA beat, reflecting 1) favorable late-Q1 hold and 2) sustained industry-wide rationalization of marketing spend. Our model implies net revenues/Adj. EBITDA of $714M/($240M), vs. consensus of $690M/($247M),” observed Stifel analyst Jeffrey Stantial in a new report.

In noting that DraftKings has more tailwinds than headwinds, Stantial added that the operator likely gained incremental market share in iGaming and sports betting in the first quarter.

Why Profitability Matters

The need for DraftKings to halt its money-losing ways is amplified by the fact that earlier today, Flutter Entertainment (OTC: PDYPY) said its FanDuel unit — DraftKings’ archrival — will be profitable for all of this year. That’s the measuring stick for the US sports betting industry.

Investors may be assuaged by DraftKings emerging as an iCasino leader, because that field is more lucrative than sports betting.

The operator’s “ongoing investments in product (proprietary progressive jackpots; in-house live casino; migration of Golden Nugget onto DraftKings platforms) is resonating with consumers. Long-term, we see further de-consolidation of iCasino market share as inevitable, evidenced by mature European markets,”  Stifel’s Stantial concluded.