DraftKings stock has risen 36% over the past month, prompting many financial advisors to move it into the “Buy” category. Much of that increase came on Feb. 17, following an earnings call in which CEO Jason Robins promised investors that the company would achieve profitability in 2024.
The gains follow a long period in which analysts have been critical of DraftKings’ spending, especially on marketing and promotions. However, the online gambling company has recently laid off 3.5% of its international staff among other steps it says will improve its 2023 revenue outlook.
On Feb. 16, DraftKings reported its Q4 2022 revenue of $855 million. That’s an 81% increase vs. Q4 2021.
The operator said the following helped it achieve revenue growth:
- customer retention and monetization in existing states
- successful launches of DraftKings Casino and DraftKings Sportsbook in additional states
- structural sportsbook hold improvement
As a result, DraftKings stock (DraftKings 43,53 +0,48%) is up 25% since the report’s Feb. 16 release and 80% year-to-date.
Positive Signs in Q4 Financials
The earnings report showed DraftKings’ monthly unique players (MUPs) increased to 2.6 million in Q4 2022, representing a 31% improvement over Q4 2021. Also, the average revenue per MUP was $109 in Q4 2022, a 42% increase YoY.
As a result, the company raised its fiscal year 2023 revenue estimate to a range of $2.85 billion to $3.05 billion from the initial $2.8 billion to $3.0 billion. The new estimate represents a 27% to 36% rise YoY. DraftKings also improved its 2023 earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) guidance to a range of $350 million and $400 million, compared with $475 million to $575 million initially.
DraftKings says it has taken several steps that resulted in an increase in revenue guidance and a significant improvement in Adjusted EBITDA guidance. That includes an increased focus on expense management to accelerate Adjusted EBITDA growth. One early sign of that is a sudden drop in promotional spending in Connecticut to start 2023.
DraftKings also says it has improved its organizational productivity to capture efficiency opportunities and optimize growth in fixed costs.
2023 Expansion Can Increase Revenue And Stock Price
DraftKings could have another successful year in 2023. More states are looking to launch online sports betting, although legislative efforts to expand online casino gaming have met with headwinds.
Massachusetts is one state that is very close to launching online sports betting. The state recently added retail sports betting and is anticipating the launch of MA sportsbook apps in March. DraftKings is headquartered in Massachusetts, making it likely that the sportsbook will be among the first to go live there.
Maine may also launch sports betting in 2023. Gov. Janet Mills signed a law legalizing sports betting, and the state is currently working on regulations. There will be from four to ten sportsbooks in Maine, and DraftKings is a strong candidate to be one of them.
In addition, bills are pending in some of the most populous states. That could significantly increase DraftKings’ revenue.
In Texas, Republicans are showing an increased interest in legalizing sports betting, which is becoming a real possibility. Meanwhile, an online casino bill has been introduced in New York, which could become the largest online casino market if it passes. Other states mentioned as possible launches in 2023 include Vermont, North Carolina, and Nebraska. Also, DraftKings plans to enter Puerto Rico as well.
However, simply expanding into new states does not guarantee profits. To increase profits and stock prices, DraftKings must continue to focus on cost-cutting measures and customer retention while also building on the momentum it gained in Q4 2022.
Good Performance in Q1 2023 Could Increase Market Share
Multiple reports suggest that DraftKings holds the No. 2 spot in the US sports betting market. They estimate the company’s market share is around 25%. Only FanDuel is ahead, with slightly over 40% of the market share.
Following a strong Q4 2022, DraftKings may be poised to increase its market share. The Super Bowl, the busiest event for sportsbooks, falls in Q1. Initial reports indicate DraftKings Sportsbook is among the winners. CEO Jason Robins has stated that the DraftKings app was the most downloaded on Super Bowl Sunday.
This year’s Super Bowl was the third-most-watched TV event in history according to Nielsen.
The volume of betting was equally impressive. GeoComply, a location verification service used by legal sportsbooks, reported 100 million geo-location checks over the weekend. That’s a 25% increase over the 2022 Super Bowl. In addition, the company registered 7.4 million accounts over the weekend, a 32% boost, YoY. If Robins’ statement is accurate, DraftKings has likely gained a significant number of users over the Super Bowl weekend.
Another key event in Q1 was the launch of Ohio sports betting. Among the states with online sports betting, the state falls behind only New York, Pennsylvania, and Illinois in population, meaning a significant boost in revenue for the top sportsbooks. GeoComply’s Super Bowl report attests to that. GeoComply reported 12.6 million geo checks in Ohio, behind only New York’s 13.9 million. However, the Buckeye State took the No.1 spot for most unique accounts, with 1.1 million. New York came in second, with 851,000.