My Thoughts From DraftKings Recent Earnings Announcement by James R. Wigen, Sr. Portfolio Manager with Independent Financial Management

  • For the three months ended December 31, 2021, DraftKings reported revenue of $473 million, an increase of 47% compared to $322 million during the same period in 2020. Fourth quarter 2021 revenue exceeded the guidance previously provided by the Company during its third quarter earnings conference call on November 5, 2021 by 8%. After giving pro forma effect to the business combination with SBTech (Global) Limited (“SBTech”) and Diamond Eagle Acquisition Corp. which was completed on April 23, 2020, as if it had occurred on January 1, 2019, revenue for the year ended December 31, 2021 grew 101% compared to the year ended December 31, 2020.

 

  • Monthly Unique Payers (“MUPs”) for our B2C segment increased 32% compared to the fourth quarter of 2020. On average, 2 million monthly unique paying customers engaged with DraftKings during each month of the fourth quarter. The increase reflects strong unique payer retention and acquisition across our Sportsbook and iGaming product offerings as well as the expansion of our Sportsbook and iGaming product offerings into new states.

 

  • Average Revenue per MUP (“ARPMUP”) was $77 in the fourth quarter of 2021 representing a 19% increase versus the same period in 2020. Our ARPMUP benefitted from continued mix shift into our Sportsbook and iGaming product offerings and cross selling our customers into more products.
  • DraftKings is raising its fiscal year 2022 revenue guidance from a range of $1.7 billion to $1.9 billion to a range of $1.85 billion to $2.0 billion which equates to year-over-year growth of 43% to 54% and a 7% increase compared to the midpoint of our previous revenue guidance.
  • DraftKings is also introducing fiscal year 2022 Adjusted EBITDA guidance. The Company expects its Adjusted EBITDA loss in 2022 to be between $825 million and $925 million.
  • In addition, assuming we had not launched any additional states after December 31, 2021, we expect that we would have generated positive Adjusted EBITDA in the fourth quarter of 2022.
  • Based on all of the states where DraftKings is currently live and if legalization trends remain consistent with prior years (which has been approximately 7% to 9% mobile sports betting legalization per year and 3% to 4% iGaming legalization per year), the Company would expect to generate positive Adjusted EBITDA in the fourth quarter of 2023.
  • Following successful launches in New York and Louisiana, DraftKings is now live with mobile sports betting in 17 states that collectively represent approximately 36% of the U.S. population.
  • DraftKings is also live with iGaming in 5 states, representing approximately 11% of the U.S. population.
  • We also invested in our in-play offering and in-play experience by introducing a new front-end user interface for Flash Bet, an immersive live betting experience where users can follow what’s happening in-game and access “flash” markets, which refer to the next occurrence that will happen in a game. Markets supported by this functionality include Next Play Result, Drive Result and Drive Yardage for the NFL and Next Team to Score and Type of Score for the NBA.

 

My take on this data – much of this information I would have expected, spending money to increase customer base and raise revenue.  This strategy is nothing new,  Amazon kept doing this for years against analysts liking, however, during one earnings call Amazon decided to show everyone they could be profitable, if they wanted to, and the shares started a rapid appreciation from $287 a share.  

I would like someone to find me a successful business who did not spend money to grow their business in their early days?  The question is whether spending money to get new customers benefits the company by selling more products, or in DraftKings case, consistent engagement from customers on their mobile platform.  Data shows their investments in obtaining new customers is working.  The online gambling and igaming is still in the early stages, started around 2018, and much of the country still does not have legal access to sports bet or be involved in igaming.  The ability for more people to have legal access in the US will continue to grow in the coming months and years.

How does any online company or Social Network stay relevant? Engagement from the people using the platform, does DraftKings have that?  Data shows yes.

What will help engagement grow from current DraftKings customers and eventually new customers? Take this information from the DraftKings earnings release:

  • We also invested in our in-play offering and in-play experience by introducing a new front-end user interface for Flash Bet, an immersive live betting experience where users can follow what’s happening in-game and access “flash” markets, which refer to the next occurrence that will happen in a game. Markets supported by this functionality include Next Play Result, Drive Result and Drive Yardage for the NFL and Next Team to Score and Type of Score for the NBA.

This technology DraftKings is adding will be a GAME CHANGER!!!!!

Last year there was a company, not DraftKings, who ran a pilot program allowing people to bet on each play during a NFL football game, the results, an average of 84 bets per person during the game.  That ability is a game changer! Now people will be able to be the GM, and Offensive Coordinator.  

If it is 2nd down and 1, you bet a pass play will be called since there is a down to waste.  If that play fails, 3rd and 1, bet a run play will be called to get a new set of downs.  Think this technology will help with customer engagement? Of course it will!  A real GAME CHANGER!

If you think about what attracts 55 million people every year to play Fantasy Football, they love being the GM for their fantasy team.  Adding the Next Play Result and Drive Yardage “Flash Bets”, and looking at the results from last years pilot program I referenced, could allow tens of millions of bets to be placed with DraftKings every NFL game, and keep customers on the DraftKings platform and engaged. 

This engagement will allow DraftKings to offer other products and services, gambling related and non-gambling related.  There will be many companies wanting to work with DraftKings to leverage this engaged customer base, adding a new high margin revenue stream the company does not currently have, and has not been added to their projected revenue growth at this point.

From DraftKings – On average, 2 million monthly unique paying customers engaged with DraftKings during each month of the fourth quarter. 

Hypothetically, if all 2 million customers were watching a NFL game and placing Next Play Result “Flash Bets”, with each customer placing an average of 84 “Flash Bets”, that would mean 168,000,000 bets placed during ONE NFL football game.

Only time will tell if this situation plays out, as I have laid it out.  The technology is there now allowing the possibility to become a reality.  With an increasing user base, this company can have much upside!

The founder of Fanatics said this morning they are getting into sports betting, as they have a large customer base already and adding sports betting would be a new source of revenue without spending millions on new customer acquisition costs.  That is a very key statement, how to reduce new customer acquisition costs. 

Fanatics obviously spends on marketing to grow their apparel business, and once they get a customer, they want to keep them engaged with their online website. Nothing new there, however, gaming companies & sports books are needing to get new customers and keep them engaged, streaming companies are trying to reduce content costs and new customer acquisition costs too.  

Seems to be a common problem with content creators, streaming companies, gaming companies, sports books, and online businesses, what is the solution?  Consolidation or Strategic Partnerships.  Coming soon, Stay Tuned!

 

James CPM® designation was supplied by Global Academy of Finance and Management or GAFM®

Investing involves serious risks and past performance is no guarantee of future performance or success.  This is not an offer to buy or sell securities and nothing contained herein should be interpreted as a recommendation regarding any investment or investment strategy.  Before making any decision to invest, first read the relevant disclosures and important information provided to you.

Please take the proper risk for your current situation and get the advice from a financial professional who clearly understands your current & future goals and objectives.

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All opinions expressed by James R. Wigen on this website are solely his opinions and do not reflect the opinions of IFP Advisors, LLC, dba Independent Financial Partners, (IFP).  Investment Advice offered through IFP Advisors, LLC, dba Independent Financial Partners (IFP), a Registered Investment Adviser. IFP and Independent Financial Management, LLC (IFM), are separate entities.

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