DraftKings Inc.’s Q3 results reveal significant growth in customer acquisition, achieving a 39% YoY growth in revenue to $1,095 million. Despite this growth, the company missed analyst expectations. The adjusted EBITDA targets for 2024 were also lowered to $260 million from the prior $380 million. With regulatory uncertainty surrounding the stock, it seems to have too many issues for the average investor’s liking.
DraftKings Inc. is an online gaming company based in the United States with headquarters in Boston, Massachusetts. The firm specializes in online sports betting and daily fantasy sports. Founded in 2012, DraftKings is one of the innovative industry tools that seem to bring fantasy sports together with conventional sports betting through cutting-edge technology.
The core products for DraftKings include daily fantasy sports contests, a full-service sportsbook for placing bets on any type of sporting event and iGaming service in the form of casino-style games. Revenue is primarily generated through entry fees for fantasy contests, betting activity on its sportsbook, and online casino gaming. It has also expanded its product base through partnerships and acquisitions, such as the acquisition of Jackpocket, a national premier digital lottery app.
The betting juggernaut serves a diverse customer base, covering individual sports fans participating in fantasy contests and betting. The end market encompasses customers with an interest in sports wagering and also online gaming, with a strong presence in the United States as the company operates in multiple states due to an increasing legalization of sports betting. It targets millennials and Gen Z customers who are seeking engagement-driven, immersive experiences in gaming.
On Friday, the company reported its latest financials and slashed revenue projections following a challenging early fourth quarter period, driven by ‘customer friendly’ sports results. While the company has plans to enter emerging markets like Missouri and Puerto Rico, the success solely hinges on gaining market access and securing regulatory licenses.
The slow kickoff to the fourth quarter is quite notable, with analysts referring to it as “the worst stretch” of NFL results DraftKings has ever seen. Consequently, the full-year 2024 revenue guidance was lowered to a range between $4.85 billion and $4.95 billion from $5.05 billion to $5.25 billion. Although the management has a bold forecast for 2025, projecting revenue between $6.2 billion and $6.6 billion, achieving this target seems to be a long shot.
The risks pertaining to achieving next year’s targets form the foundation for our bearish outlook. Since the nature of the company is such that it heavily depends on external influences, particularly the regulatory landscape, certain elements remain beyond the management’s control. For instance, Illinois’ recent decision to raise taxes on gambling activities shows the company’s vulnerability to political transitions.
DraftKings has blamed “unfavorable sports outcomes”, particularly in the NFL, for multiple quarters of EBITDA misses. But if the house always wins in the long run, why does it keep citing these results as a reason for weak profitability?
DraftKings Inc. isn’t on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 56 hedge fund portfolios held DKNG at the end of the second quarter which was 64 in the previous quarter. While we acknowledge the potential of DKNG as a leading investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as DKNG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
