DraftKings stock plummets in pre-market trading as annual net losses surpass $1.5bn
DraftKings saw its share price tumble by more than 18% at the peak of pre-market trading after releasing its Q4 and full-year 2021 financial results.
The Nasdaq-listed operator more than doubled annual revenue to $1.3bn but reported an operational loss of $1.56bn and a net loss of $1.52bn. Sales and marketing costs increased by 98% to $981.5m as adjusted EBITDA losses reached $676.1m, worsening by 72.5% year-on-year.
DraftKings now expects to report negative adjusted EBITDA of between $825m and $925m in full-year 2022 as it continues to spend heavily on marketing to acquire customers and state entries and expansions across the US.
Revenue estimates for 2022 have also been increased to between $1.85bn and $2bn, with the change in guidance based on the recent launches of mobile sports betting in New York and Louisiana. The guidance does not include new state launches after 18 February 2022.
The company now expects to generate positive adjusted EBITDA by Q4 2023 on the caveat that legalisation trends remain consistent with prior years. The positive EBITDA timeline was pushed back by one year due to the costs associated with entering New York and Louisiana.
Including those two states, DraftKings is now live with online sports betting in 17 states, representing around 36% of the US population. It is also live with iGaming in five states, accounting for approximately 11% of the US population.
Looking at Q4 2021, the operator reported a 47% rise in revenue to $473m, up from $322m in the prior corresponding period. This exceeded its Q3 guidance by 8%.
Monthly unique players (MUPs) for DraftKings’ B2C offering increased by 32% compared to Q4 2020. Two million monthly unique paying customers engaged with DraftKings during each month of Q4 on average, which the operator said was proof of its strong player retention and acquisition strategy across its sportsbook and iGaming products.
Average revenue per MUP was $77 in Q4 2021, up 19% on the same period of last year.
“DraftKings’ strong fourth quarter performance exceeded our expectations on the top and bottom line,” said DraftKings CEO Jason Robins.
“Our excellent quarter capped off a year in which five of our states were contribution profit positive, further demonstrating the effectiveness of our state playbook and supporting our positive view of the industry’s TAM.
“We enter 2022 positioned to grow our market share, further optimise our user experience and continue to strengthen our multi-product suite of offerings,” he added.
Regulus Partners analyst Paul Leyland said performance to date has justified DraftKings spending large sums of money on growing a “powerful but not dominant” US market presence, although it should not respond to increasing competition by simply spending more cash.
“DraftKings is clearly performing well, but FanDuel is stronger in betting, BetMGM is stronger in gaming, and all other operators are determined to grow share,” he said.
“DraftKings’ plan to win share through marketing-led scale might have worked on a sportsbook-only basis, but online gaming provides organic cashflow to challengers, BetMGM especially, but also a critical mass of others.
“In our view, product and service will win out in the US, but it is far from clear who will gain a sufficient product and service advantage and how sustainable it will be.
“Plenty of companies have thrown considerable sums of money at this question and failed, since it is more about having the right skills in the right combination, senior management applying common-sense, high quality project management, deep local knowledge, and luck,” he added.
More to follow…