DraftKings Inc. shares soared in late trading Thursday, after the sports-gambling company crushed Wall Street’s revenue expectations and executives increased their targets for the full year.
DraftKings DKNG,
DraftKings shares jumped more than 8% in after-hours trading immediately following the release of the report, following a 2.8% decline to $21.31 in the regular session.
DraftKings stock has nearly doubled at times this year, and ended the regular session up more than 86% for 2023 as the S&P 500 index SPX,
Executives’ optimism extended past the returns from those events, though. DraftKings executives increased their forecast for 2023 revenue to a range of $3.14 billion to $3.24 billion, after previously stating $2.85 billion to $3.05 billion.
“DraftKings’ first quarter performance — 84% year-over-year revenue growth and share gains underpinned by a relentless focus on operational efficiency — demonstrates that this is a company positioned for sustained success,” Chief Executive Jason Robins said in a statement.
DraftKings has focused on profitability in recent quarters, taming promotional material as several states that legalized sports gambling in recent years grew into more mature markets and fewer states come online. Executives also increased their guidance for adjusted Ebitda, now projecting an annual loss by that metric of $290 million to $340 million, after previously stating a loss of $350 million to $450 million, and predicted a break-even second quarter by the tailored metric.
“We now expect to be approximately break-even on an Adjusted Ebitda basis in the second quarter, supported by fixed costs that are projected to only grow at a single digit rate year-over-year during the quarter,” Robins and Chief Financial Officer Jason Park wrote in a letter to shareholders. We also expect to generate nearly $150 million of Adjusted Ebitda in the fourth quarter.”
Stifel analysts wondered in a Wednesday note if the slowing pace of state legalization could endanger DraftKings executive’s expected growth beyond 2023, however. Only Kentucky appears to be prepared to join the list of states that have approved online sports gambling in 2023, though North Carolina and Vermont could also join the list if their state legislators act in the coming months.
“Should KY, VT, and NC legalize this year and launch in 2024, this would imply ~5% incremental penetration of the U.S. population (including a targeted ME launch) comparing to the 7-8% embedded in DraftKings’ 2024 guidance,” they wrote. “iCasino expansion has been disappointing, trending towards no new states this year (vs. DraftKings’ 2024 guidance of 3-4% incremental penetration of the population).”
Executives seemed to acknowledge those concerns in their letter, noting that “12 states that collectively represent approximately 24% of the U.S. population have either introduced legislation to legalize mobile sports betting or introduced bills that may result in sports wagering referendums during an upcoming election,” and promising “under any reasonable new state launch scenario in 2023 and 2024, we expect to be able to generate positive Adjusted Ebitda for full-year 2024.”
