DraftKings shares sell off sharply after company reports slowed customer growth

November 6, 2022 10:33 AM
Photo: Shutterstock
  • Matthew Crowley, CDC Gaming Reports
November 6, 2022 10:33 AM
  • Matthew Crowley, CDC Gaming Reports

Third-quarter customer growth slowed more than expected for fantasy sports giant DraftKings and investors reacted strongly. The stock price fell 27.8 percent on Friday in regular trading, the biggest single-day percentage plunge, although third-quarter earnings per share and revenue surpassed Wall Street forecasts.

In a statement Friday, Boston-based DraftKings said its third-quarter net loss was $450.5 million, or $1 per share, for the three months ended Sept. 30, compared with a net loss of $545 million, or $1.35 per share, per share, a year earlier.

The per-share results topped the consensus $1.04-per-share loss forecast by analysts surveyed by Seeking Alpha.

DraftKings narrowed its loss in adjusted earnings before interest, taxes, depreciation, and amortization to $264.1 million from $313.6 million. Adjusted EBITDA is a cash-flow measure that excludes one-time costs.

Revenue more than doubled, surging to $502 million from $213 million and topping the $437.2 million forecast of Seeking Alpha-polled analysts.

For the quarter, DraftKings said its monthly unique paying customers increased 22% year to year to 1.6 million from 1.3 million. But analysts had projected two million and growth was slower than in the second quarter’s 30% growth.

The shares fell $4.36, or 27.82%, to close at $11.31 on the Nasdaq Stock Market. After hours, the shares gained 16 cents, or 1.46% to settle at $11.48.

Finding the silver lining, Draft Kings noted that its average revenue per monthly paying user surged 114% year over year to $100, boosted by higher revenue from National Football League wagers. And continuing a pattern from previous quarters, DraftKings raised its full-year revenue forecast, pegging it at $2.16 billion to $2.19 billion for fiscal 2022, up from a previously projected $2.08 billion to $2.18 billion.

DraftKings said it now projects a fiscal-year-2022 Adjusted EBITDA loss of between $800 million and $780 million compared with a previously projected loss o $835 million to and $765 million. DraftKings said the adjusted EBITDA guidance didn’t include its Sept. 1 launch in Kansas or fourth-quarter investments ahead of expected launches in Maryland and Ohio, pending regulatory approvals and licensure.

“We have shifted more attention toward cost controls and our path to profitability,” DraftKings Chief Executive Officer Jason Robins said in a conference call with analysts and journalists. “We identified over $100 million of annual cost savings and significantly slowed year-over-year fixed cost growth … (and) are well-positioned from a balance sheet standpoint to reach profitability under most reasonable legalization scenarios without needing to raise any additional capital.”

Robins told The Wall Street Journal that DraftKings invested $17 million into a campaign to support a California online sports betting ballot initiative. Polls suggest Proposition 27 will fail in Tuesday’s midterm elections. Robins said DraftKings ceased its financial support for the measure.

Follow Matthew Crowley on Twitter @copyjockey.

Follow Matthew Crowley on Twitter @copyjockey.