Updated Aug 7 at 6:02pm ET.
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DraftKings reported a mixed second quarter, with revenue of about 1.44 billion dollars coming in lower than the 1.51 billion dollars analysts expected. While the company earned 9 cents per share, which was better than the roughly 2 cents expected, the overall business saw a 5 percent drop in revenue compared to the same time last year.
The dip in revenue was mostly due to two things: a run of sports results that favored bettors over the house, and a heavy increase in promotions. Promotions are essentially discounts or free bets used to attract new users, and while they help grow the player base, they leave less profit on each dollar wagered. For long-term owners, the key is whether this spending leads to a loyal group of players who will stick around once the free offers stop.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
DraftKings is shifting its strategy to include prediction markets, which allow people to bet on the outcomes of non-sporting events. Executives believe this will help the company grow into a broader platform that can reach customers in states where traditional sports betting is not yet legal.
By moving beyond just sports, the company can use its existing technology to find new ways to make money from its millions of active users. If successful, this expansion could make the business less dependent on the sports calendar and provide a more consistent flow of revenue throughout the year.
DraftKings is seeing a boost in activity following the World Cup, which acted as a major event for finding new customers and bringing back old ones. While the company's recent quarterly numbers were mixed, management noted that the momentum from the tournament has continued into the second half of the year.
This is a positive sign for the company's ability to grow its user base through major global events. The challenge for DraftKings is to keep these new players on the app and moving toward higher-margin products like casino games or complex parlay bets, where the house typically keeps a larger share of the money wagered.
Source: Bloomberg Technology
DraftKings is scheduled to report its second-quarter results after the closing bell today. Analysts expect the company to report a small profit of about 2 cents per share on revenue of roughly 1.51 billion dollars.
Beyond the headline numbers, the most important thing to watch is the monthly active payers count. The company needs to keep this number above 4.2 million to prove that its platform is staying sticky as it moves past its early growth phase. We will also be looking for updates on how many players are using high-margin casino games, which cost the company almost nothing to provide once a user is already on the app.
Some analysts are warning that prediction markets, which let people bet on the outcome of real-world events like elections or economic data, could compete for the same dollars people currently spend on sports betting. These platforms often offer better odds because they take a smaller cut of each bet than a traditional sportsbook.
For DraftKings, the risk is that its most active users might shift some of their bankroll to these newer platforms. However, DraftKings still has a massive advantage in its database of 4 million active players and its ability to offer legal, regulated casino games that prediction markets cannot match.
Analysts recently lowered their price targets following the company's mixed second-quarter earnings report. Most analysts remain bullish, with 35 of 48 rating the stock a buy and an average target price suggesting 47% upside from current levels.
DraftKings has a habit of beating profit expectations, clearing the bar in five of the last eight quarters even as it spends heavily to grow.
