Draft Kings Stock Presents a Bargain Opportunity
Digital sports gaming platform DraftKings Inc. (NASDAQ: DKNG) stock recently peaked on a spike up to $64.49 before selling off on news of its $20 bill...
Digital sports gaming platform DraftKings Inc. (NASDAQ: DKNG) stock recently peaked on a spike up to $64.49 before selling off on news of its $20 billion acquisition offer for U.K.-based iGaming company Entain. The sell-off in shares may be presenting a bargain entry for risk-tolerant investors looking for exposure in the rapidly expanding digital sportsbook and iGaming segment. The Company has also diversified its products to ride the NFT trend with plans to launch the DraftKings Marketplace to offer digital collectibles for mainstream purchases. The Company has partnered with Autograph for exclusive drops of iconic athletes including Tom Brady, Wayne Gretsky, Tony Hawk, Derek Jeter, Tiger Woods, and Naomi Osaka. This cross-selling opportunity exists due to the continued brand-building efforts that has helped accelerate top-line revenues by over 300% in Q2 2021. Risk-tolerant investors seeking exposure in the sports betting and iGaming trend can watch for opportunistic pullback levels in shares of DraftKings.
Q2 FY 2021 Earnings Release
On Aug. 6, 2021, DraftKings reported its Q2 2021 earnings for the quarter ended in June 2021. The Company reported an earnings-per-share loss of (-$0.76) missing consensus analyst estimates for a loss of (-$0.59), a (-$0.18) miss. Revenues rose 320% year-over-year (YoY) to $298 million beating consensus analyst expectations by $49.3 million. The monthly unique payers (MUPs) for the B2C segment rose 281% YoY. On average, 1.1 million MUPs engage with DraftKings each month in Q2 2021 with average revenue per MUP rising 26% YoY to $80.
CEO and CFO Comments
DraftKings CEO Jason Robins commented, ““DraftKings had a particularly strong second quarter of 2021, maintaining our impressive financial performance while also advancing into new areas, such as media and NFTs. We believe these expansion opportunities will enable us to further grow our customer base and generate additional revenues through cross-selling to our existing players. We also are excited that the migration to our proprietary in-house online sports betting technology is substantially complete, with only one state remaining pending approval.” DraftKings CFO Jason Park added, “We delivered strong growth in new customers and revenue. Our $298 million in second quarter revenue represents a 297% increase year-over-year. Additionally, we grew Monthly Unique Payers by 281% and Average Revenue Per Monthly Unique Payer by 26%. We are again raising our revenue outlook for 2021 as we continue to expect robust growth in the states where we are currently live today.”
Raise Revenue Guidance
The Company raised it full-year 2021 revenue guidance to a range of $1.21 billion to $1.29 billion versus $1.18 billion consensus analyst estimates.
Conference Call Takeaways
CEO Robbins set the tone, “At this stage, we’re not seeing any signs of the economies reopening impacting demand for our mobile product offerings. We continue to acquire customers efficiently with tech at or below our target. And as a data-driven company, we will dial up or down our investments according to the numbers. ARPMUP is also outperforming our expectations, which may be an indication that player LTVs could be even better than we thought. As of now, we are not making any adjustments to our models or internal CAC target. Engagement in the quarter was outstanding across all our products, particularly during the NBA and NHL playoffs and finals, major golf tournament, Champions League, Copa América and the Euro Cup. We’re also very excited about the continued traction we are seeing in combat sports, such as the UFC. To give a sense of the engagement we saw in the quarter, excluding new states, NBA playoffs handle and paid active increased 82% and 47% compared to the 2020 playoffs. To give a sense of engagement on a more normalized basis, handle and paid actives for the NBA playoffs grew 293% and 119% in New Jersey compared to the NBA playoffs in Q2 of 2019. Also, excluding new states, handle for The Masters increased 47%, with paid actives up 35% compared to the 2020 Masters in November. Handle and paid actives for The Masters grew 241% and 78% in New Jersey compared to The Masters in Q2 of 2019. In fact, overall OSB handle in New Jersey grew 196% and paid actives increased 111% in the second quarter of 2021 compared to the second quarter of 2019.”
CEO Robbins stated, “iGaming gross revenue also continued to grow at an impressive rate in the quarter, despite retail casinos reopening to full capacity in all the four states where we operate with iGaming. The overall New Jersey iGaming market group 33% in Q2, which is even more impressive when considering that New Jersey iGaming it’s been available for almost eight years. More importantly, DraftKings’ iGaming gross revenue in New Jersey grew more than 2.5x the rate of the overall market in the second quarter, which is outstanding given the tailwinds we experienced in the same period last year due to COVID. Our business momentum has continued into Q3. On July 9, we announced an expansion and extension of our existing exclusive daily fantasy sports and sports betting relationship with Major League Baseball. As an official sports betting partner of MLB, our brand will be visible throughout digital odds displays and virtual signage within MLB game. The expanded relationship also includes the right to an innovative bet and watch streaming integration with fans with open enacted mlb.com and DraftKings accounts will be able to watch a free live MLB game within the DraftKings app. July 10 was an all-time top 10-day for acquiring a new mobile sports betting customers, even though July is traditionally our slowest acquisition month for the year. This critical day included the Wimbledon Women’s Championships, Brazil versus Argentina in the Copa América final and the Poirier versus McGregor fight.” He continued, For iGaming, we added DK Craps to our mobile Casino suite in New Jersey with Pennsylvania, Michigan, and West Virginia to follow pending approval. The game is a DraftKings-exclusive and built in-house, perhaps it’s a challenging game to develop, given the seemingly endless path players can take. And our internal teams were able to deliver an authentic and truly differentiated Craps experience. In addition, we have launched our jackpot technology, which is enabled by our prior acquisition of Blue Ribbon.
CEO Robbins addressed legislative momentum, “Turning to legalization trend. We have seen continued momentum in both mobile sports betting and iGaming legislation. In 2021, 25 state legislatures have introduced legislation to legalize mobile sports betting. Five state legislatures have introduced legislation to expand their existing sports wagering framework and two state legislatures have introduced legislation to legalize sports betting limited to retail locations. In addition, four states have introduced iGaming legislation and three states have introduced online poker-only legislation. Six of the states were DraftKings has potential opportunity to participate via market access agreement or direct license, Wyoming, Arizona, New York, Maryland, Louisiana, and Connecticut have already authorized mobile sports wagering this year. These six states represent 13% of the U.S. population and brought the percentage of the population with legalized mobile sports betting to 39%. DraftKings is live with online sports betting in 12 states that collectively represent 25% of the U.S. population. Additionally, DraftKings is live with iGaming in four states, representing approximately 10% of the U.S. population. Connecticut is also authorized by iGaming, which would add about 1% of the population.”
DKNG Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provides a precise view of the landscape for DKNG stock. The weekly rifle chart formed a market structure high (MSH) sell trigger on the breakdown through $58.54. Shares collapsed through the weekly 5-period moving average (MA) support at $59.05 and 15-period MA at $52.94. The weekly stochastic peaked and is testing the 80-band cross down. The weekly upper BBs sit near the $65.61 Fibonacci (fib) level. The daily rifle chart has an active downtrend with falling 5-period MA at $53.10 with lower daily BBs at the $49.44 fib. The daily stochastic has made a full oscillation down through the 10-band indicating oversold conditions. Prudent investors can look for opportunistic pullback levels at the $51.32 fib, $49.92 fib, $48.96 fib, $47.07 fib, $45.61 fib, and the $44.96 fib. The upside trajectory range is the $60.36 fib up towards the $74.22 fib.