DraftKings Soars in NASDAQ Debut, Closes Below Opening Print as Investors See Long Road to Profitability

Posted on: April 25, 2020, 04:00h. 

Last updated on: April 26, 2020, 10:35h.

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

DraftKings (NASDAQ:DKNG) jumped 10.38 percent in its first day as a public company on Friday. But the newly minted stock closed below its opening print, as some investors ponder how long it’ll take for the sportsbook operator to turn a profit.

DraftKings Public Stock Debut
DraftKings is now a public company, but investors believe profitability will take some time. (Image: Wall Street Journal)

On volume of 11.47 million shares, DraftKings closed at $19.35 after opening at $20.49 and trading as high as $20.75, according to Bloomberg data. That closing price is almost 10.4 percent higher than the final print of Diamond Eagle Acquisition Corp., the special purpose acquisition company (SPAC) used in a reverse merger to aid DraftKings in becoming a publicly traded firm. The stock rose almost four percent in Friday’s after-hours session.

Some market observers believe it’ll be some time before the daily fantasy sports (DFS) juggernaut turns a profit, a relevant concern as the company’s losses are increasing.

The closing of the SPAC transaction and ensuing NASDAQ listing is an important milestone for DraftKings,” said Roundhill Investments CEO and co-founder Will Hershey in remarks emailed to Casino.org. “While profitability remains a ways off, being a public company will provide critical access to the public markets.”

Hershey didn’t estimate when DraftKings will stop losing money. The company posted a 2019 loss of $143 million, although revenue jumped 43 percent.

Important for Other Reasons

In the hyper-competitive sports betting landscape, where margins are slim for brick-and-mortar sportsbook operators, online operators, including DraftKings, face considerable costs when it comes to luring and retaining customers. As a public company, DraftKings has new avenues for raising capital, should it need to.

“The online sports betting and gaming market is all about customer acquisition right now, and that will require meaningful amounts of capital,” said Hershey.

Speaking of customers, with no traditional sports available to DFS players and gamblers at the moment because of the COVID-19 pandemic, some market observers viewed DraftKings NASDAQ debut as poorly timed. However, the company is getting a jolt from the NFL Draft.

Round one of the 2020 draft was Thursday night, and DraftKings CEO Jason Robins told CNBC it “was a really big betting event relative to prior years,” indicating there’s pent-up demand for regular sports schedules to return.

Another Issue to Consider

As Casino.org reported on Thursday, an overlooked issue with the DraftKings initial public offering (IPO) is that the company debuted with multiple share classes, ensuring the vast majority of the entity’s voting rights are controlled by a small number of investors, potentially raising corporate governance issues.

That much was confirmed with a Form S-1 filing with the Securities and Exchange (SEC), indicating DraftKings co-founder Jason Robins will control 92.7 percent of the company’s voting shares. A group of just 15 shareholders own 94.7 percent of the sportsbook operator’s voting rights.