DraftKings Stock Down 20% After Earnings Call
Photo by Jakub Porzycki/NurPhoto via Getty Images. Pictured: DraftKings Logo
Company earnings calls are usually a point of wild volatility for stocks, as the market learns new information. For DraftKings, that is no different.
Shares of DraftKings were down a whopping 15.5% when the market opened on Friday morning, down to $13.23 – a four-month low – on the heels of third quarter earnings.
By 10 a.m. ET, the stock had reached a 20% dip at $12.4. That's a number that represents a 70% drop since this time in 2021.
DraftKings made the case that its revenue growth was up 136% year over year, "much higher than expected" according to CEO Jason Robins. He argued that engagement, retention, favorable outcomes and reduced promotion intensity were key in that improvement. But the market — focused on profitability — didn't seem to agree.
Favorable outcomes included underdogs winning outright during the first couple weeks of the NFL season, particularly in the 11 primetime games. In those games, the company had a hold percentage greater than 10%, more than double the typical average hold.
Parlays, Same Game Parlays and live betting were talked about frequently during the earnings call. Robins noted the company's early win payout promotions successfully drove gamblers to use that money and bet more live during the game. Nothing was mentioned about the company's NFT business.
DraftKings said it lowered promotional intensity, such as free bets, which reduced consumer acquisition costs. Robins noted the company also spent less than expected on marketing thanks to the fact that the company can now have more national ads.
The operator now has sportsbooks in 18 states, which represents 37% of the U.S. population. Adding Maryland, Ohio and Massachusetts, which are coming online soon, will boost that number to 45%.
But the exact number that was being saved in overall marketing costs is hard to decipher. For the first nine months of 2022, costs were up almost 20% from $703 million to $840 million, despite the narrative that individual states that have been doing business with DraftKings for more than a year saw their quarterly marketing spend down 20%.
Monthly unique payers were up by 300,000 in the third quarter compared to the third quarter of last year, and they generated more than double the revenue per month ($47 versus $100).
DraftKings lost $1.3 billion in the first nine months of 2022 compared to $1.19 billion in the same period last year, but is guiding towards a loss of less than $400 million in 2023.
Robins said the company expects to achieve a breakeven number in 2024, assuming reasonable state launch scenarios. The company will end the year with $1.1 billion in cash and expects to burn another $600 million in cash in 2023.
In line with previous quarters, DraftKings CFO Jason Park said that the company was not seeing any negative effects from the macroeconomy.