DraftKings Stock Bumps Up Following Positive Second Quarter

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DraftKings saw its stock jump 5.84% Friday after the company reported strong second-quarter earnings and improved end-of-year guidance.

The stock rose as much as 15% during normal trading Friday before settling down. DKNG saw more than 4 times its average daily volume at 44.9 million.

DraftKings reported $73 million in adjusted EBITDA for the second quarter to mark the company’s first quarter without a loss. Management expects positive EBITDA in the fourth quarter as well.

CFO Jason Park noted $20 million of the adjusted EBITDA came from favorable sport outcomes on a the second-quarter earnings call.

DraftKings new 2023 guidance

DraftKings raised guidance for both its fiscal 2023 revenue and adjusted EBITDA:

The company will likely report an adjusted EBITDA loss in the third quarter behind NFL betting promotions and the launch of Kentucky sportsbooks by Sept. 28. The Kentucky launch should result in a $20 million EBTIDA loss, Robins said.

DraftKings will also launch in Puerto Rico during the third quarter.

Revenue grew at ‘impressive’ rate

DraftKings reported $875 million in second-quarter revenue, an increase of 88% compared to last year.

“DraftKings produced outstanding results for the second quarter of 2023,” CEO Jason Robins said. “We grew revenue at an impressive year-over-year rate, captured additional GGR share in a cost-effective manner, and maintained our focus on operational efficiency.”

CFO Jason Park pointed to DraftKings’ oldest states as a main reason why the company is on the verge of annual profitability. He directly attributed the vintage states’ “strong results and our visibility” into continued improvement for raising revenue guidance on the earnings call.

“Our unit economics are outstanding with older states generating more than enough cash to fund investment in new states,” Park said in the earnings release. “This performance, combined with fixed costs that grew at only a mid-single digit year-over-year percentage rate in the second quarter, resulted in an inflection to positive adjusted EBITDA that we expect will occur again in the fourth quarter and for full year 2024.”

Vintage states mentioned in Robins tweet

Robins’s Twitter followers were reminded about the strength of those more mature states when he tweeted about their growth a week before the earnings report came out:

“There’s massive potential for growth in new markets – but we’re still seeing really strong growth in existing states.

“Our 2018-2019 state vintage grew over 80% on the revenue basis year-over-year in Q1. With those numbers, we expect robust growth even without new states opening.”

Robins deleted the tweet about 30 minutes later. The tweet and its subsequent deletion raised questions about whether Robins ran afoul of DraftKings’ ‘quiet period’ prior to earnings or Regulation FD, which outlines where nonpublic material information should be released.

DraftKings declined to answer questions about the tweet.

Vintage state stats

Park dove into specifics for the states launched between 2018 and 2021 on Friday morning’s call:

Robins attributed the vintage states’ performance to helping increase guidance for the fourth quarter and second half.

Employee-related costs improved

Employee-related costs in the general and administrative line also dropped 27.4% to $136.3 million for the quarter.

DraftKings’ 10-Q attributed that decrease to a reduction in stock-based compensation by $42.5 million and a reduction in transaction-related costs of $10.1 million.

Same-game parlays in focus for DraftKings

DraftKings now builds live same-game parlays in-house for the MLB, NBA, NFL and college basketball and football.

The company also added to its live markets for golf, MLB and tennis in the quarter.

Improvements to the sportsbook product can help bring in more customers, which is positive for iGaming as well. About 50% of online sports betting customers cross over to iGaming in the states that allow both, Robins said.

Highest sports betting quarterly share since COVID

DraftKings had a 35% share of online sports betting handle and a 32% share of gross gaming revenue in the second quarter, Robins said.

Both numbers were the best since since the second quarter of 2020. which covered April through June of 2020.

DraftKings also ranked number one in iGaming gross revenue with a 27% share, Robins said.

DraftKings not thinking about M&A -after it did

DraftKings is “laser focused on executing” for the third quarter, Robins said when asked about potential acquisitions.

“And listen, there’s always talk of things happening in the background and we have small teams that make sure they’re aware of what’s going on,” Robins said. “But as a company, we’re very, very focused on executing and winning in the U.S.”

DraftKings appeared interested in acquisitions in June when it offered $195 million in cash for the US operations of PointsBet, outbidding Fanatics by 30%. Fanatics eventually offered $225 million for those operations while DraftKings did not offer a binding offer by the deadline.

“Fanatics Betting and Gaming conducted their diligence process and negotiations in a highly professional manner at all times,” PointsBet Chairman Brett Paton said when the board recommended accepting Fanatics’ offer.