DraftKings (DKNG -2.75%) announced its results for the first quarter of fiscal 2022 before markets open on Friday, May 6. The online gaming company raised its targets for the rest of the year after posting better-than-expected results in the first quarter.
DraftKings offers mobile sports betting, online gambling and daily fantasy sports across the United States and will soon enter the Canadian market. The nature of its service means that it must be approved in each jurisdiction before it can start accepting clients from the region.
Let’s take a closer look at the Q1 numbers and see what makes DraftKings optimistic for the rest of 2022.
DraftKings raises expectations for 2022
In its first quarter, which ended March 31, DraftKings generated $417 million in revenue. That was up 34% from the $312 million he earned in the year-ago period. Wall Street analysts expected DraftKings to post $414 million in first-quarter revenue. The better-than-expected sales growth satisfied DraftKings management.
Jason Park, Chief Financial Officer of DraftKings, said, “We are pleased with our strong revenue and adjusted EBITDA. [earnings before interest, taxes, depreciation, and amortization] performance in the first quarter, driven by healthy underlying customer behavior and our ability to realize efficiencies. Accordingly, we are increasing the midpoint of our fiscal 2022 revenue guidance by $50 million and improving the midpoint of our fiscal 2022 adjusted EBITDA guidance by $75 million. »
As mentioned earlier, DraftKings requires licenses to operate in every state. So far, it’s live with mobile sports betting in 17 states and online gambling in five. It recently launched in New York State, a crowded market that could prove incredibly lucrative for DraftKings in the long run. Speaking of big states, DraftKings is optimistic about its ability to enter the California market. It is funding a ballot initiative in the state, which has received 1.6 million signatures, to place mobile sports betting on the November 2022 ballot.
Meanwhile, three regions that have already legalized sports betting and where DraftKings could potentially start offering its services are Maryland, Puerto Rico and Ohio. Together, they make up 7% of the US population. Additionally, DraftKings has already gained approval and will launch in Ontario, Canada in Q2. With all this momentum, management is rightly optimistic for the rest of 2022.
The market was not impressed
DraftKings stock is down 27% in the past five days. Of course, other factors come into play, including the market’s growing aversion to unprofitable growth stocks. Overall, DraftKings is down 84% from its highs. Admittedly, the company’s losses to net income are troubling. In its most recent quarter, its net loss increased to $468 million from $346 million in the year-ago period.
DraftKings aggressively invests in customer acquisition each time it enters a new state market, and that spending has resulted in massive losses. It’s unclear whether customers it acquires in the early stages of state legalization will stick with DraftKings or switch to a competitor that offers a promotional bonus. Therefore, DraftKings stock may struggle to turn higher despite impressive growth.