DraftKings Earnings Preview: Have Cuts Affected Customer Spend?


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DraftKings beating Wall Street expectations became a recent trend, as it combats the current sports betting landscape by generating more from existing customers.

DraftKings will report its results for the second quarter after the stock market closes on Aug. 1. Revenue per customer has been an important metric for the company as it targets a 10.5% hold for the year while sports betting expansion slows.

How is hold target tracking?

DraftKings grew average revenue per customer by 24% in the first quarter and posted a 9.5% hold, a strong number considering an unfavorable run of sports outcomes.

That helped DraftKings beat Street revenue estimates by 4.6% in Q1, which CEO Jason Robins attributed to customers betting more parlays, with higher leg counts. A significant portion of customer spending growth came from DraftKings’ oldest markets, an important distinction at a time when fewer states are left to legalize sports betting.

Whether DraftKings was able to maintain that trend in Q2 will be a key indicator for how it can grow, as market expansion slows and it looks toward its goal of full-year profitability for 2024.

Pricing Illinois tax change

This time around, consensus Street estimates peg DraftKings to report $1.1 billion in revenue for Q2, which would represent 27.3% growth year over year.

Analysts at Macquarie and Truist recently lowered their DKNG target prices in light of Illinois increasing its sports betting tax rate, but maintained ‘buy’ ratings, citing “attractive growth at reasonable prices” and “overdone” selloffs.

DKNG is up over 14% year-over-year. However, its price has fallen slightly less than 1% over the past month, trading at $37 a share Wednesday before after-hours trading.

Earlier this week, Caesars brass said they would not be changing their strategy in Illinois despite the $5 million impact they expect from the change. However, it could have a bigger impact on DraftKings, which is in line for the tiered tax’s high-end 40% rate levied on the highest-grossing operators.

DraftKings ends NFTs, Reignmakers

On Tuesday DraftKings announced it is shutting down its NFT business, in light of a recent development in a class action lawsuit that alleges it constitutes unregistered securities trading.

“After careful consideration, DraftKings has decided to discontinue Reignmakers and our NFT Marketplace, effective immediately, due to recent legal developments. This decision was not made lightly, and we believe it is the right course of action,” DraftKings said in an email to customers.

This decision comes just a few weeks after a federal judge denied DraftKings’ motion to dismiss the lawsuit, stating that the plaintiffs had “plausibly pled” their case. As part of the shutdown, DraftKings is offering buyouts to remaining Reignmakers players, according to an email.

This marks the end of nearly four years in the NFT space for DraftKings. Once a touted initiative, the NFT business gradually faded from the company’s spotlight, suggesting it may not have delivered the anticipated results. Further details are expected Friday, potentially including insights into the financial implications of this decision.

More details on VSiN sale?

Expect financial analysts to ask about another recent divestiture: the company selling VSiN back to its original owners.

DraftKings announced the sale last week, three years after it acquired the sports betting radio and TV network for $70 million.

However, the terms of the sale, most notably the price tag, have not been made public.

Is DraftKings still spending less?

While likely for different reasons, both moves seem to fit with the company’s vision of shedding expensive partnerships and spending less overall.

Sales and marketing declined by 12% last quarter, its third straight quarter of cuts, in part because of fewer state launches. DraftKings did recently launch in Washington D.C.; however that is the third-smallest sports betting market in the US by population.

If DraftKings manages to make it four straight quarters of sales and marketing cuts, it would go a long way towards the company’s profitability goal.

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