Can DraftKings sustain meteoric revenue growth?

Mobile gaming has grown its revenue at a dazzling rate over the past few years. A big reason for this was the boost created by pandemic shutdowns when people couldn’t visit casinos to place bets. Mobile gaming leader DraftKings (DKNG 14.62%) was one of the main beneficiaries.

Casinos have been allowed to reopen, gambling enthusiasts feel more comfortable returning to crowded casinos, and DraftKings expects a slowdown this year as a result. The company also worked hard to expand into new markets, but encountered challenges along the way.

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DraftKings is expected to release its fiscal 2022 first quarter results before markets open on Friday, May 6. Investors will be watching the report closely to see how the online gambling giant handles the changing consumer behavior it sees in 2022.

Revenue growth expected to slow in 2022

DraftKings has impressively accelerated revenue growth for three consecutive years, posting sales increases of 17.9% in 2018, 42.9% in 2019, 90% in 2020 and 110.9% in 2021. These last two increases were clearly influenced by the pandemic, but as shown in the chart below, DraftKings was increasing even before the pandemic outbreak.

DKNG Revenue Table (Annual)

DKNG turnover (annual) data by YCharts

Just as influential as the pandemic in this revenue growth story has been DraftKings’ expansion into new markets. As a gaming business, it must request access to each new jurisdiction (state) in which it wishes to offer its services. In this regard, he is making good progress. DraftKings operations are now live in 17 states for mobile sports betting, representing 36% of the US population. iGaming is growing more slowly, with operations permitted in just five states, representing 11% of the population.

More interestingly, DraftKings recently launched in New York State. This market has the potential to generate $1 billion in gross gaming revenue per year. To put that number into context, DraftKings had $1.3 billion in revenue in 2021. Revenue from the new market hadn’t started flowing in its most recent quarter, which ended on December 31, when DraftKings increased its revenue by 47% compared to the same quarter of the year. before.

Management appreciated the results and raised the target for the remainder of 2022 by seven percentage points. He now expects revenue growth of between 43% and 54%, which would be a deceleration from 111% in 2021.

What this could mean for DraftKings investors

Wall Street analysts expect DraftKings to report first-quarter revenue of $414.36 million and a loss per share of $1.16. If the company meets these projections, it will represent an increase in revenue of 32.7% and a decrease in EPS losses of 33%, respectively, compared to the same period last year.

DKNG Net Income Chart (Annual)

DKNG net income (annual) data by YCharts

DraftKings invests aggressively in each new state it enters, with the goal of attracting customers quickly. Spending on sales and marketing leads to massive losses on the bottom line. It’s no secret that the market is quickly falling in love with unprofitable growth stocks, and DraftKings stock has been hammered, falling around 78% from all-time highs. To stop the bleeding, management will likely need to discuss profitability targets and when investors can expect those targets to be met. Otherwise, continued unprofitable growth is unlikely to change the stock price narrative.