DraftKings (NASDAQ:DKNG) is joining other gaming equities to the upside Thursday. That could be a sign market participants are expecting the company to deliver good news when it reports second-quarter results before the open of US markets tomorrow.
In what will be the Boston-based sportsbook operator’s fifth earnings report since going public last year, analysts are expecting a loss of 58 cents a share on revenue of $247.22 million. The forecast for a per-share loss isn’t surprising, because DraftKings has yet to be profitable, and that’s not expected to change until at least 2023. The revenue estimate is reflective of DraftKings boosting its full-year revenue outlook in May, when it said it expects sales of $1.05 billion to $1.15 billion, up from a prior estimate of $900 million to $1 billion.
With DraftKings stock having shed a third of its value from its March highs, there is some burden on the company to excite Wall Street and investors with the forthcoming earnings update. Some analysts believe it’s possible due to faster-than-expected state-level rollout of sports betting in some states.
While a portion of this growth is likely coming from pull-forward and faster than expected adoption (helped by very aggressive marketing spending), we do expect continued growth off these higher base levels as customer familiarity, products, and in-play betting adoption all remain in their infancy,” said Bank of America analyst Shaun Kelley in a recent note.
DraftKings currently offers mobile betting in 11 states. But analysts expect management will discuss possible upcoming launches in Arizona, Louisiana, and Maryland, as well as time lines for Connecticut and New York. Legislative updates for Florida and Massachusetts could also be mentioned on the Friday conference call.
DraftKings Stock Still Pricey
Bank of America’s Kelley says DraftKings trades at 17x 2022 sales, and while that’s rich relative to other high-growth consumer cyclical names, the premium is warranted.
“We believe this premium is justified, given the early stage enthusiasm for the vertical and the scarcity value associated with DKNG, given it is the only US pure-play for sports betting of meaningful size,” said the analyst.
While DraftKings is the only pure-play sports betting name currently available in the US equity market — a trait long highlighted by bullish analysts — it won’t retain that status forever, because more companies in this category are coming to market. Plus, competition in the domestic sports betting arena is tough.
Just this week, Caesars Entertainment (NASDAQ:CZR) said it will spend $1 billion bolstering its iGaming and sports wagering exposure, while MGM Resorts International (NYSE:MGM) said its BetMGM unit is rapidly gaining market share in both segments across the country.
Football Focus
With the April through June period and much of the current quarter not including any football for US bettors to wager on, any DraftKings commentary on expectations for the upcoming season is likely to be closely monitored by analysts.
“Companies will likely center expectations on a football season-timed recovery (pickup in volumes, media attention, and some new state activity), though we still wonder about increasing focus on topline market share and profitability driving performance,” said Truist analyst Barry Jonas.
Even with the second quarter lacking football, the most wagered-on sport on the US, state-level data indicate DraftKings could top sales forecasts for the period by 20 percent to 30 percent, according to Oppenheimer analyst Jed Kelly.
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