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DraftKings cuts Q3 losses, but shares plummet as 2023 projections spook market


DraftKings reported a 135.8% revenue increase to $501.9m and reduced losses in Q3, but projections for 2023 have led to its share price tumbling.

As expected, B2C operations made up almost all of the revenue –  at $492.8m, up by 160.6%. B2B, from the former SBTech business, made up the remaining $9.0m – a dip of 62.6%.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) were $264.2m, down by 15.7%

On the back of this, DraftKings also raised its 2022 full-year revenue guidance from between $2.08bn and $2.18bn to between $2.16bn and $2.19bn. If met, this would mean year-on-year revenue growth of between 67% and 69%.

Jason Robins, CEO of DraftKings, spoke positively of the quarter during DraftKings’ earning call today (4 November).

“Our third-quarter revenue was $501.9m, much higher than expected,” he said. “2022 has been a transformative year for DraftKings.”

Elsewhere, he attributed the quarter’s success to focusing on efficiency without sacrificing growth.

“Throughout 2022, we’ve struck the right balance between delivering differentiated top-line growth and driving operating efficiencies.”

Jason Park, CFO at DraftKings, also noted that the revenue and adjusted EBITDA for the quarter had exceed expectations – and added that the increase in revenue projection was down to  “the strength we saw in our online gaming particles in Q3”.

“Both revenue and adjusted EBITDA significantly outperformed expectations from our Q2 earnings call in August,” said Park.

Park added that the adjusted EBITDA growth was “primarily due to the higher-than-expected revenue”.

2023 woes

But DraftKings’ expectations for full-year 2023 revenue and EBITDA caused a severe decline in its share price, which plunged by 20.6% at the time of writing. Having closed yesterday trading at $15.80 per share, its stock now trades at $12.64 as of 2:00pm GMT.

Full-year revenue for 2023 is expected to lie between $2.8bn and $3.0bn, while adjusted EBITDA for 2023 is projected to be a loss of between $475m and $575m. The market has not responded well to these figures.

Regulus Partners noted that it could prove difficult to bring down costs without revenue also declining.

“Marketing costs are still running at 64% of revenue despite strong sportsbook margins, while the variable cost of revenue has closed only 6ppts to 74%,” Regulus said. “How these costs are managed to become less than 60% of revenue in order to generate strong positive cash flow after central costs will be crucial to the shape of the business going forward.”

Robins said that DraftKings does not expect to reach an overall positive adjusted EBITDA until the end of next year.

“We expect the 4th quarter of 2023 – just one year from now – will be our first quarter with positive adjusted EBITDA.”

Regulus noted that if the business takes longer than this to turn a profit, it may start to come up against much more serious problems.

“Current net cash of US$1.4bn gives around five quarters of trading at Q3 loss rates, meaning further momentum in closing losses is key for sustainability, when sportsbook margins might not be so kind,” Regulus said.

“Expected profitability in Q423 is therefore more than just guidance, it is a strategic imperative, in our view.”

For the third quarter, operating costs were $455.0m, 16.7% less than in the third quarter of 2021. The cost of revenue brought in the highest expense, at $372.6m, 118.2% higher year-on-year.

Sales and marketing costs were $321.7m, up by 5.9%. While product and technology costs also rose – from $65.2m to $76.2m – general and administrative costs fell by 15.2% to $186.2m.

The total net loss for the third quarter was $450.4m, a decrease of 17.3% year-on-year.

First nine months of the year

For first nine months of the year, revenue stands at $1.38bn, 68.3% more than the first nine months of 2021. Adjusted EBITDA is $671.8m, a rise of 22.5%, while the total net loss for the first nine months is $1.13bn.

Q3 had been an eventful quarter for DraftKings. In September alone, it signed a deal with Amazon to feature its odds on Amazon Prime’s Thursday Night Football broadcasts, named Steve Aoki as its new NFT brand ambassador and launched a new responsible gaming campaign.