DraftKings Dives on Weak 2023 Forecast, Lingering Losses

Posted on: November 4, 2022, 08:55h. 

Last updated on: November 10, 2022, 01:48h.

DraftKings (NASDAQ: DKNG) stock tumbled in early trading Friday after the sportsbook operator issued tepid 2023 guidance, including a larger-than-expected loss.

DraftKings stock
Inside a DraftKings office. The stock tumbled Friday as the company issued weak 2023 guidance. (Image: Wall Street Journal)

While the gaming company lifted its 2022 guidance, its 2023 earnings before interest, taxes, depreciation and amortization (EBITDA) spooked Wall Street. DraftKings is forecasting an EBITDA loss of $475 million to $575 million next year, well ahead of the consensus estimate of $426 million.

The Boston-based firm said its goal is to turn EBITDA profitable in the fourth quarter of 2023. But that wasn’t enough to allay analysts’ concerns about the company’s money-losing ways. DraftKings lost $450.5 million in the July through September period, bringing its loss for the first nine months of 2022 to $1.14 billion.

The daily fantasy sports (DFS) giant issued 2023 revenue guidance of $2.8 billion to $3.0 billion, or 33% year-over-year growth at the midpoint of that range. DraftKings’ upped 2022 and new 2023 guidance assumes the launch of mobile sports wagering in Maryland in the current quarter, “Ohio and Massachusetts in the first quarter of 2023, and in Puerto Rico in the third quarter of 2023.”

DraftKings’ Lack of Profitability Proves Problematic

Analysts and investors have long decried DraftKings’ inability to turn a profit and the lengthy timeline the company offered for when that ominous status will change.

Compounding those woes is the point that rivals Barstool Sportsbook, BetMGM, and Caesars Sportsbook are trimming losses and flirting with profitability and that FanDuel notched a profitable quarter from April through June. There’s talk that, if not for their significant exposure to the Houston Astros potentially winning the World Series, Barstool and Caesars Sportsbook would likely have been profitable in October.

Suppose there’s a silver lining to what the investment community perceives as a downbeat report. In that case, there’s mounting evidence of more rational spending by DraftKings and the rest of the online sports wagering industry.

“3Q22 results further affirm an industry-wide rationalization in the promotional environment, where incumbent industry leaders are collectively reducing promo/marketing intensity as smaller operators taper back,” wrote Roth Capital analyst Edward Engel in a note to clients on Friday.

He rates DraftKings stock a “buy,” with a $25 price target.

Q3 Recap, 2022 Outlook

In the third quarter, DraftKings posted revenue of $502 million, representing year-over-year growth of 136%, on an EBITDA loss of $264 million. That was 18% off analysts’ estimates.

The company forecasts 2022 revenue of $2.16 billion to $2.19 billion, up from prior guidance of $2.08 billion to $2.18 billion. The sportsbook giant pared its 2022 EBTIDA loss estimate to $780 million to $800 million, up from $765 million to $835 million.

“DraftKings is live with mobile sports betting in 18 states that collectively represent approximately 37% of the U.S. population following the launch of its online Sportsbook in Kansas on Sept. 1, 2022,” according to a statement issued by the company. “DraftKings is also live with iGaming in five states, representing approximately 11% of the US population.”