DraftKings released its Q1 financial results last week. The company generated $770 million in revenue for the quarter, representing 84% growth year-over-year. However, DraftKings still suffered a bottom-line loss of $397.1 million, or $0.87 per share. CEO and co-founder Jason Robins said the losses are part of the long-term strategy and told investors that the company expects to break even on an Adjusted EBITDA basis in Q2.
Adjusted EBITDA – earnings before interest, taxes, depreciation, and amortization – is a measure of a company’s operational performance outside of finance-related considerations. In broad strokes, a positive EBITDA means that a company’s business is fundamentally profitable even if it is currently posting a loss due to paying down debts. On that basis, DraftKings’s losses equaled $221.6 million.
Robins said the improved revenue results are due to solid execution and operational efficiency.
In the May 5 press releases, DraftKings announced it’s raising its fiscal year 2023 revenue guidance to $3.135-$3.235 billion from a previous range of $2.85 – $3.05 billion. That implies expected year-over-year growth of between 40% and 44%.
DraftKings Is Feeling Hopeful After Q1 Results
Even though DraftKings reported a substantial loss, it’s an improvement from Q1 2022, when losses equaled $467.7 million, or $1.14 per share. The $221.6 million Adjusted EBITDA losses translate to $0.54 per share, improving from Q1 2022, where losses were $289.5 million, or $0.74 per share. Adjusted EBITDA results also beat analysts’ forecasts of $261 million.
However, the DraftKings CEO is focused more on revenue results. According to him, the 84% increase was primarily due to the successful launches of DraftKings Sportsbook in Ohio and Massachusetts, the company’s home state. DraftKings was the leader in the Bay State in March, the first month live, taking 47% market share.
Another positive result was the 39% increase in Monthly Unique Players (MUPs) to 2.8 million. The average revenue per MUP rose 35% year-over-year to $92, primarily due to improvements in the company’s structural sportsbook hold rate and reduced promotional intensity. However, the results were slightly lower than in Q4 2022, where the average revenue per MUP was $109.
Results also show DraftKings Sportsbook attracted 57% more first-time players than in Q1 2022.
DraftKings claims it has overtaken BetMGM in the online casino segment. BetMGM would contest that claim, however. In its Q1 earnings call, it claimed it still holds the top spot.
Investor Enthusiasm for DraftKings Rekindles
DraftKings’ stock jumped 12.7% after the company released its Q1 report. At the time of writing, DraftKings shares have increased about 122% year-to-date versus the S&P 500’s aggregate gain of 8.1%.
Many analysts are now rating the company as a “buy,” while others are more cautious and have kept it a “hold” until it makes good on its promises of turning profitable. Some have reacted to DraftKings’s bullish projections with skepticism.
Will DraftKings Achieve Profitability?
Robins has been consistently bullish on his company despite its roller-coaster share prices. DraftKings has now raised its estimates for two quarters in a row. After Q3 2022, the Adjusted EBITDA guidance was for a $475-$575 million loss — the new guidance cuts the expected loss by 40%. If Robins is to be believed, profitability is now an achievable short-term goal.
Robins told investors:
Looking at the remainder of 2023, I am confident DraftKings is well-positioned to achieve profitability on an Adjusted EBITDA basis in the near term and deliver long-term value for our shareholders.
That is welcome news for investors who have been demanding such profitability for a long time. Initial enthusiasm for DraftKings’s aggressive pursuit of market share has gradually turned to concern over costs.
Despite Robins’s promises, the company will need a very strong Q2 to realize its forecasts. DraftKings still needs to cut costs. Its marketing expenses – $389.1 million in Q1 – are still up by 20% year-over-year. The lack of new state launches in Q2 may help in terms of expenses, though it also means no new revenue streams. However, the NBA and NHL playoffs, plus the NFL draft and March Madness final could all contribute on the revenue front.
Analysts worry that the forecast could be a response to competitors’ claims. The market leader in sports betting, FanDuel, says it expects to be profitable by the end of the year. The same goes for BetMGM, while Caesars could see profitability as early as Q2. It remains to be seen which companies make good on the promise.
Guidance For 2023 Includes Continued Expansion
DraftKings’ Q1 results show that the company operates its sportsbook in 21 states, representing 44% of the US population. On the other hand, DraftKings Casino is only available in five states, representing 11% of the US population. Both products are available in Ontario, home to about 40% of Canada’s population. There’s much more room for the industry – and DraftKings – to grow on the iGaming front.
DraftKings’ 2023 forecast includes a launch in Puerto Rico. The territory has already started retail sports betting and expects to commence online betting this year. DraftKings didn’t include Kentucky in its forecast, though that market should open before the end of the year. Governor Andy Beshear signed HB551 into law on Mar. 30, requiring the market launch within six months.
Furthermore, in the press release, DraftKings mentions 12 more states that have introduced bills to legalize sports betting. Most of those efforts are now dead, but Vermont’s chances look good. However, the likely launch won’t be until January or early 2024.