DraftKings Stock Continues To Slide Despite Q1 Earnings Beat

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DraftKings stock

DraftKings stock fell 12% Monday after the company posted Q1 results with strong revenue growth but continued heavy losses.

The company reported adjusted EBITDA loss of $290 million on Friday, ahead of guidance of a $320-$340 million loss.

Net loss was $468 million, while revenue was up 34% to $417 million.

DraftKings stock trending up?

DraftKings CEO Jason Robins struck an upbeat tone on the earnings call, saying the company saw “faster ramps and faster paths to profit” in an easing competitive environment.

“Some of the very aggressive new user offers have started to taper off significantly,” Robins said. “We never went nearly as far as some of our competitors.

“But certainly, a softening there will help the overall market and could lead to faster-than-expected reduction in promotional intensity.”

Marketing efficiencies

Robins said the EBITDA beat was thanks in part to efficiencies from marketing on a national scale rather than local. 

Wells Fargo noted around half of the beat came from moving some expenses into Q2.

Cost of doing business?

Indeed, the company still has significant outgoings. Stock-based compensation was $187 million in the quarter. Truist analyst Barry Jonas noted that was “much higher” than his forecast and represented 45% of Q1 revenue.

DraftKings also drew attention for spending $700,000 in Q1 on a private plane for “the business and personal travel of Mr. Robins and his family.”

The plane is owned by Robins but he charges the company for its use.

Air Jason

In March, DraftKings also agreed to a one-year, $600,000 lease of the aircraft from an entity controlled by Robins. The company will cover all operating, maintenance and other expenses associated with the aircraft. 

Per the DraftKings 10-Q, Robins and his family need to fly private for security reasons. The DraftKings remunerations committee assessed it was “more efficient and flexible and better ensures safety, confidentiality and privacy.”

What’s in a plane?

Truist’s Jonas noted it was relatively unusual for gaming companies to pick up the cost of an executive’s private and family travel.

Jonas said:

“Planes are common (though increasing less so with Caesars selling their plane), but it is usually for VIPs and executives’ business travel.”

He added: “With DKNG’s Class B structure, the CEO has ~90% voting power, so I don’t see this changing unless he believes it’s harming the stock price somehow. I am guessing it is low on the totem pole of things for him to worry about today.”

What else did we learn in DraftKings stock results?

The Golden Nugget acquisition closed last week and should result in long-term annual EBITDA synergies of $300 million. The deal gives DraftKings access to 5.5 million new players in the GNOG database, especially women casino players it was not reaching before.

On the product front, Robins said DraftKings was looking to parlays and same-game parlays to boost hold. The operator has historically lagged FanDuel in that area.

“We’ll continue to find ways to introduce that product [SGP] and ensure customers understand how fun it can be,” Robins said.

DKNG California dreamin’?

Robins called the 1.6 million signatures secured for California sports betting “a really important step.”

“If California were a country, it would be the fifth-largest economy in the world ranked by GDP,” Robins said. “In short, from a legalization perspective, there is a lot to look forward to.”

Robins said DraftKings could be live in California sometime in 2023 if its preferred measure is approved by voters.

Shades of gray

CFO Jason Park said DraftKings should go live in Ontario sports betting at some point in May. However he was cautious about predicting big revenues from the province, given the presence of longtime gray-market operators.

As for Massachusetts, Robins said:

“We continue to be hopeful something will be done. This is obviously our backyard. So having our products be legal in the Commonwealth is very important to us. And just like any legislative process, even one in our backyard, it’s always impossible to predict what’s going to happen. And we continue to be hopeful and available to work with lawmakers should we be able to be of assistance.”

What could help ailing DraftKings stock?

Finally, Robins said DraftKings was still “very interested” in Nevada, but opposed to in-person registration and wallets segregated from other states.

“If the opportunity presents itself, we’d love to be able to offer customers in Nevada our products,” Robins said.

$DKNG stock was down on Monday to $11.35, and is down 22% since earnings.