DraftKings: Over 1 Million Unique Monthly Customers
Despite $350M of losses in Q3, up from $161M last quarter, investors continue to be excited about DraftKings — but where do they go from here?
|Joseph Pompliano||Nov 16|| 3|
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DraftKings, the leading daily fantasy sports contest and mobile sports betting operator, reported better than expected Q3 earnings last week — causing their stock to jump over 10% premarket.
Here are the details (Source):
DraftKings reported Q3 revenue of $133 million, which was in line with analyst expectations but up almost 98% year-over-year.
DraftKings reported a loss of nearly $350 million, primarily due to over $200 million in marketing spend during the quarter.
DraftKings reported more than 1 million monthly unique payers in Q3.
DraftKings increased their full-year revenue guidance to a range of $540 million to $560 million, up from previous guidance of $500 million to $540 million.
Looking a year ahead, DraftKings expects 2021 revenue to fall between $750 million to $850 million.
What led to such a strong third quarter for DraftKings?
It appears the return of sports created a perfect storm.
Here’s what DraftKings CEO Jason Robins had to say:
“The resumption of major sports such as the NBA, MLB and the NHL in the third quarter, as well as the start of the NFL season, generated tremendous customer engagement.”
DraftKings, which went public in April after it combined with Diamond Eagle Acquisition Corp., a special purpose acquisition company (SPAC), is up over 300% this year — even though it currently sits more than 30% below its all time high.
Despite reporting a quarterly loss of $350 million, which is up from $161 million last quarter, investors continue to be excited about DraftKings market-leading position.
Well, here are the facts (Source):
Two and a half years since PASPA was struck down by the U.S. Supreme Court, 21 states representing about 40% of the US population have legalized sports betting.
Out of the 21 states that have legalized sports betting, 14 have legalized mobile sports betting.
Out of those 14 states that have legalized mobile sports betting, DraftKings is currently live in 10 — which is more than any other sports betting operator.
The 10 states that DraftKings is live in represent about 20% of the US population.
DraftKings also expects to go-live in Virginia & Michigan shortly, which represent an additional 6% of the US population.
In addition to their current 10 state offering, and projected go-live in Virginia & Michigan, DraftKings also saw states including Maryland, South Dakota and Louisiana pass referendums in favor of sports betting this past election cycle.
As you can see, investors are not only excited about DraftKings current market leading position but also the enormous growth opportunity in front of them — despite widening financial losses.
(📸 / DraftKings)
In addition to leading marketshare, higher than anticipated revenue, and additional states legalizing sports gambling through an election process, DraftKings also had a strong quarter from a partnership perspective.
DraftKings now has partnership deals in place with media organizations like ESPN & Turner Sports and major professional sports teams including the Chicago Cubs, the New York Giants and the Philadelphia Eagles.
Don’t forget that DraftKings added Michael Jordan to their board as a special advisor.
DraftKings expects their recent partnerships with media organizations, professional sports teams, and Michael Jordan to provide them with access to “unique and valuable content, intellectual property, and marketing assets, as well as highly relevant target audiences in markets where sports betting has recently been legalized.”
In the end, increasing their available inventory of states and strategic partnerships is great, but it’s funny to think the one thing that hurt their business the most might be their greatest asset moving forward.
What am I talking about?
The COVID-19 pandemic impacted their financial position significantly, as almost all major professional sports leagues were shut down for an extended period of time — but similar to how companies like Amazon, Zoom and Peloton have benefited during the pandemic, so will sports betting operators like DraftKings.
The change in consumer behavior.
Not only has the rate at which people are betting during the pandemic accelerated—New Jersey saw a record high $803 million in bets during October—but the way in which they are doing it has changed also.
In October, New Jersey saw 93% of their sports bets, or ~$750 million, placed via mobile — a number that would have been much closer to 80% last year. For states like Colorado, which saw 98% of bets wagered via mobile, the disparity is even higher.
(📸 / DraftKings)
Think about it this way — the WSJ published an article in November 2019 titled “How 5G Could Drive Mobile Sports Betting,” which pitched the idea that “faster 5G service will help connect more sensors within stadiums and bring much lower latency, which translates into more in-game betting opportunities.”
With fans stuck at home, gambling more than ever, and using their mobile device to do it, isn’t that exactly what happened?
The answer is yes.
Sure, sports betting operators have retail locations also, and part of the increase is due to new customers who weren't betting before, but it’s also foolish to ignore the elephant in the room that is digital transformation.
To be fair, a macro consumer shift toward betting digitally doesn’t only benefit DraftKings, but more so the entire industry as a whole.
Now, it’ll be interesting to see how leagues, teams, and even individual players partner up with mobile sports betting operators like DraftKings to leverage their audience and distribution in exchange for financial benefit.
The next decade should be fun.
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