DraftKings Inc. (DKNG), a prominent player in the sports betting and online gaming industry, is poised to unveil its third-quarter financial results on Thursday after market close. Investors will be closely watching the company’s performance, particularly in light of the ongoing NFL season and the expansion of legal sports betting into new states.
Analysts’ Expectations and Key Metrics
Analysts anticipate that DraftKings will report third-quarter revenue of $1.11 billion, a significant increase from the $789.96 million recorded in the same period last year. While the company missed revenue estimates in the second quarter and two of the past three quarters, it has consistently exceeded expectations in eight of the last ten quarters.
In terms of profitability, analysts project a loss of 42 cents per share for the third quarter, compared to a loss of 35 cents per share in the prior year’s third quarter. Notably, DraftKings has a track record of surpassing earnings per share expectations for ten consecutive quarters.
Positive Outlook and Analyst Sentiment
Bank of America analyst Shaun C. Kelley remains optimistic about DraftKings’ prospects, citing its strong market share in the sports betting landscape and the potential for positive financial guidance updates. Kelley, who maintains a Buy rating and a $50 price target, expects revenue flow-through in the second half of the fiscal year to be better than anticipated, potentially bolstering EBITDA for fiscal 2024.
Kelley acknowledges that fourth-quarter top-line growth might fall slightly below guidance due to unfavorable hold and competitive iGaming comparisons. However, he believes DraftKings could demonstrate hold expansion similar to its rival, FanDuel, driven by reduced promotional spending.
Duopoly Dominance and Market Share
Needham analyst Bernie McTernan has highlighted the emergence of a near-duopoly in the online sports betting market, with DraftKings and FanDuel owner Flutter Entertainment (FLUT) dominating the space. McTernan emphasizes the potential for the total addressable market size of U.S. online sports betting to continue exceeding expectations.
Based on a Needham survey, sports bettors primarily rely on FanDuel and DraftKings. However, McTernan suggests that market share could fluctuate between the two leaders as the market lacks a physical network effect that would favor a dominant player. Unless the market structure undergoes a significant change, McTernan anticipates FanDuel and DraftKings remaining at the top, with other competitors trailing behind.
In 2023, FanDuel and DraftKings held a combined market share of 73%, with FanDuel commanding 37.8% and DraftKings at 34.8%. BetMGM occupies a distant third position with an 8.6% market share. During the second quarter of 2024, FanDuel’s market share reached 37.3%, while DraftKings held a share of 37.0%. BetMGM and Caesars, occupying the fourth position, experienced declines in market share compared to the previous year.
Key Areas to Watch for Investors
Investors will closely monitor DraftKings’ financial performance, particularly in the context of the ongoing NFL season, which is a significant revenue driver for the company, especially in the fourth quarter. Early commentary on the NFL season’s impact will be closely scrutinized.
The company’s guidance on its future growth trajectory and its recent $1 billion share buyback program will also be of interest to investors. The effectiveness of the share buyback program will be a key area of focus.
DraftKings’ acquisition of Jackpocket, which led to a decrease in average revenue per monthly unique paying customer in the second quarter, will be another point of observation for investors.
Furthermore, DraftKings’ expansion into new markets will be closely watched. As of July 25, the company offers mobile sports betting services in 25 states and Washington, D.C., covering 49% of the U.S. population. DraftKings also provides iGaming services in five states. The recent legalization of sports betting in Missouri, the 39th state to do so, will be a significant development for the company. DraftKings and FanDuel were instrumental in supporting the ballot proposal, and investors will be eager for updates on the timeline for Missouri’s sports betting launch.
DraftKings has previously identified 10 jurisdictions, representing 12% of the U.S. population, that have introduced legislation or proposals for legalizing mobile sports betting. The company’s insights into the progress of these initiatives in other states will be closely monitored.
DraftKings Stock Performance
DraftKings’ stock closed at $38.25 on Wednesday, up 4.94% for the day. The stock has traded within a 52-week range of $28.69 to $49.57 and is up 14% year-to-date in 2024.
