DraftKings Forecasts Q2 Revenue Well Above Consensus, Shares Slide on Secondary Offering News

Posted on: June 16, 2020, 05:55h. 

Last updated on: June 17, 2020, 10:30h.

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

In a Form S-1 filing with the Securities and Exchange Commission (SEC), DraftKings (NASDAQ:DKNG) forecast second-quarter revenue that’s well above consensus estimates.

DraftKings Strong Revenue Forecast
DraftKings forecast strong Q2 revenue, but shares dipped on news of a secondary offering. (Image: Fox Business)

The filing, released today after the close of US markets, indicates the daily fantasy sports (DFS) company and sportsbook operator expects turnover for the April through June period of $70 million to $75 million, well above analysts’ average forecast of $41 million. It’s not immediately clear whether the relevant period for this year is comparable to the year earlier time frame.

During the three months ended March 31, 2020, we had 720,204 average monthly unique payers (‘MUPs’) and revenue of $88.5 million, resulting in an average revenue per MUP (‘ARPMUP’) of $41,” said DraftKings in the filing.

A sequential decline in revenue isn’t surprising, because until mid-March, the sports calendar was chock full of events, only to dry up in the third month of the year because of the COVID-19 pandemic. DraftKings’ bullish revenue outlook is all the more impressive when considering the bulk of sports wagering options in the April through June stretch revolved around obscure offerings, such as Korean baseball, some international soccer and table tennis competitions.

Shares Still Fall Because…

In Tuesday’s after-hours session, DraftKings stock slumped 5.47 percent after declining almost three percent during normal trading hours. That’s because the company announced a secondary share offering. That’s common practice among firms that recently came to market, as DraftKings did with its April 24 initial public offering.

In the SEC filing, the sportsbook operator said it’s selling 14 million shares in the secondary sale. Assuming a sale price of $41.79, which is noted in the S-1, DraftKings would raise $585 million. News of the share offering is at least the third from the gaming industry just this week, with Eldorado Resorts (NASDAQ:ERI) making a similar announcement yesterday and DraftKings rival William Hill (OTC:WIMHY) saying earlier today it’s commencing an offering equivalent to almost 20 percent “of its existing ordinary share capital.”

Existing shareholders will be diluted because at $585 million, the DraftKings capital raise is well in excess of the company’s tangible book value of $454.9 million.

Mystery Sellers

In addition to the 14 million shares being marketed by DraftKings itself, another 19 million will be sold by investors, according to the SEC filing.

Typically, the stakeholders participating in a transaction of this nature would be institutional players that amassed large positions in the company, or those that invested in the firm prior to the IPO. The S-1 does identify the participants in the 19-million share sale, but as Casino.org reported last month, DraftKings has some well-known companies and individuals on its investor roster.

Those include Walt Disney, owner of a six percent stake in the DFS firm; billionaire financier George Soros, two NFL owners – Robert Kraft of the New England Patriots and Jerry Jones of the Dallas Cowboys – and at least two NBA governors – Boston Celtics co-owner Stephen Pagliuca and the company controlling the New York Knicks.

All of the stock being sold is Class A, which comes with one vote per share. DraftKings CEO and co-founder Jason Robins controls 92.5 percent of the Class B equity with 10 votes a share.