DraftKings Soars on Boosted 2022 Revenue Outlook, Sees Lower EBITDA Loss
DraftKings (NASDAQ:DKNG) soared 9.78% today, ranking as one of Friday’s best-performing gaming stocks. That’s after the company boosted its 2022 revenue guidance while trimming its earnings before interest, taxes, depreciation and amortization (EBITDA) forecast.
The online sportsbook operator is now projecting 2022 revenue of $2.08 billion to $2.18 billion, up from a prior outlook of $2.05 billion to $2.17 billion. That implies year-over-year revenue growth of 60% to 68%. Analysts were expecting $2.1 billion. Boston-based DraftKings sees a 2022 EBITDA loss of $765 million to $835 million — better than the previously forecast loss of $810 million to $910 million.
The revenue forecast doesn’t include Kansas, Maryland, Ohio, and Puerto Rico — jurisdictions where DraftKings has market access, and in which sports wagering is legal, but not yet live. Nor does the top line estimate include Massachusetts, where DraftKings will likely be granted an online license owing to its homegrown status. Acquisitions and new market entries contributed to the elevated guidance.
DraftKings is raising its fiscal year 2022 revenue guidance to a range of $2.08 billion to $2.18 billion from the range of $2.055 billion to $2.175 billion previously announced on the Company’s first quarter earnings call on May 6, 2022, which included contributions from the Company’s acquisition of GNOG and the Company’s expected launch in Ontario,” according to a statement issued by the company.
DraftKings currently offers mobile sports wagering in 17 states, covering 36% of the US population, and iGaming in five states, representing 11% of the population.
DraftKings Cedes Market Share
Data indicate FanDuel remains the dominant online sportsbook operator in the US, with DraftKings and BetMGM tussling for the second spot.
In the second quarter, DraftKings’ market share slipped on an incremental basis. But at least one analyst says that’s not necessarily bad news, noting it could be a sign the company is reining in heavy promotional spending. That’s long hindered its ability to become profitable.
“That said, the rev/EBITDA beat also came alongside market share losses to FanDuel, where perhaps DKNG is beginning to prioritize profitability over market share,” wrote Roth Capital analyst Edward Engel in a note to clients today.
He rates DraftKings “neutral,” with a 12-month price target of $14. That’s well below today’s closing print of $17.96.
Engel notes that although promotional spending in the industry is being tempered at the moment, that could change with the imminent arrival of football season.
“A key debate for OSB stocks is the sustainability of a more rational promo environment. Some of the YTD rationalization is due to seasonality, and EBITDA losses could exceed expectations if promo intensity becomes irrational again during NFL season,” adds the analyst.
Second-Half Catalysts for DraftKings
With the stock higher by 32.26% over the past month and flirting with its first close above $18 since April, DraftKings could use catalysts beyond the arrival of football season to stoke further upside.
Those could arrive in the form of Maryland finally getting online wagering off the ground, Massachusetts swiftly doing so and California voters signing off on online sports betting in the largest US state.
Regarding California, “DraftKings is cautiously optimistic about the ultimate outcome in November and the potential to generate hundreds of millions of dollars to address homelessness, mental health, and addiction in partnership with the state’s Tribes,” the company said in the statement.
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