DraftKings founder and CEO Jason Robins says the strength in sports betting is continuing unabated, as increasing revenue and better cost controls have the company seeing a better-than-forecast 2022 ahead.
“What’s nice for us is we’re still in this market, and it can’t help but grow,” said Robins on a phone call. “Our customers, from what we’ve seen, continue to be incredibly strong. A lot of companies that are consumer-focused are seeing a pretty material drop-off in consumer spend due to some of the inflationary pressures and macro-economic things. We’re seeing none of the sort.”
DraftKings reported first-quarter earnings of $417.2 million revenue with a net loss of $1.14 per share this morning, which beat consensus analyst expectations. The business was able to raise its sales guidance for the full year as well, by $50 million to $1.975 billion. That new outlook excludes the potential impact of any new states legalizing sports wagering, and Ontario, which recently opened up its sports betting market.
The results failed to help DraftKings shares overcome the bearishness in the stock market, however. DraftKings’ opened higher on the earnings news today then slumped to as low as $13.13—its lowest price ever—as the market continues to sell-off on inflation, supply chain and Ukraine war concerns. Year-to-date, DraftKings has lost 50% of its value, a sharp but not unusual decline compared to other sports betting related stocks; every stock with gambling exposure in the JohnWallStreet Sports Stock Index is down for the year. That’s despite business results in the sports betting market performing as well or better than expected by Wall Street since DraftKings successfully went public two years ago, which sparked a sports stock frenzy.
“The market is the market, but we feel pretty fortunate to be in the position we are with our business,” added Robins. “Had we gone public a year later, we might not be in the position we are now, with a tremendous balance sheet. We ended the quarter with over $1.8 billion in cash and the only debt is a seven-year convertible that has a 0% interest rate, so we have no carrying costs.”
Robins says he is especially heartened by the addition of Tilman Fertitta’s Golden Nugget Online Gaming (GNOG), a transaction that closed this week. The all-stock deal, in which DraftKings paid 29 million shares for the publicly traded gambling business, also doesn’t count toward DraftKing’s raised guidance for the year. In 2021, Golden Nugget Online Gaming generated $128.2 million in revenue and a robust $80 million in net income. Robins says that beyond pure numbers, GNOG allows DraftKings to expand its reach to customers that so far have been resistant to sports betting brands.
“After some research, we determined DraftKIngs is really identified as a sports brand and the non-sports, casino audience were thinking we’re not for them. But when we did acquire those customers, we saw a great retention rate due to the quality of our product—it’s just harder to get them on.”
The acquisition of GNOG brings on a large mix of those harder to acquire customers, which has a larger mix of women bettors, as well as a stable of slots and table games to compliment DraftKings’ existing offerings. “We think it’s really attractive, and then add on top of that we quantified as roughly $300 million in synergies. It’s a great financial transaction as well.”
Controlling costs has become an item of focus for sports betting investors, so the addition of more revenue with the ability to trim out $300 million in expenses lays the groundwork for longer term growth, according to Robins. DraftKings also told investors on a conference call with analysts this morning that it has also been able to reduce marketing costs by increasing the mix of national advertising and cutting back on high-cost, lower impact local promotions.
“What we’re seeing on our underlying fundamentals, in our customer cohort, the pace of legislation—all of those things are incredibly strong and, quite ironically, counter to the overall macroeconomic environment right now,” Robins said in his call with Sportico. “We really love the long-term fundamental story and also feel good about the short-term results that we just posted for the last quarter.”
-With assistance from Eben Novy-Williams