DraftKings (DKNG) Stock Plunged 16.7% on Higher Loss Expectations. Is It a Buy?

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Simon Mugo
Updated: 18 Feb 2022

Key points:

  • DraftKings stock plunged 16.7% on higher full-year loss expectations.
  • The company also moved its expected profitability date to Q4 2023.
  • Investors are worried about rising competition in the sports betting sector.

The Draftkings Inc (NASDAQ: DKNG) stock price plunged 15% after issuing a higher than expected loss estimate for its 2022 fiscal year.

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The sports betting giant reported excellent Q4 2021 earnings results. It generated revenues worth $473 million and reported a loss of 35 cents a share compared to last year’s 68 cents a share loss on $322 million in revenues.

Also Read: What is Sports Trading? – A Beginners Guide.

Investors reacted negatively to the company’s loss estimates for its 2022 fiscal year, which it expects to be between $825 million and $925 million, representing a significant difference compared to analysts consensus estimates of a $699 million loss.

DraftKings also postponed the date it expects to turn a profit from Q4 2022 to Q4 2023, disappointing investors.

On a positive note, the company raised its revenue guidance for 2022 to $1.85 billion to $2 billion, with a mid-point of $1.93 billion driven by the launches planned in new states.

Another highlight of the report was that its full-year revenues surged past $1 billion to $1.3 billion following its excellent performance in Q4 2021.

The $473 million Q4 2021 revenue represented a 47% improvement to 2020 figures and played a crucial role in pushing DraftKing’s revenues above $1 billion.

Jason Robins, DraftKings’ Co-founder, CEO and Chairman, said: “DraftKings’ strong fourth-quarter performance exceeded our expectations on the top and bottom line. Our excellent quarter capped off a year in which five of our states were contribution profit positive, further demonstrating the effectiveness of our new state playbook and supporting our positive view of the industry’s total addressable market (TAM).”

“We enter 2022 positioned to grow our market share, further optimise our user experience and continue to strengthen our multi-product suite of offerings.”

Jason Park, DraftKings’ Chief Financial Officer (CFO), added: “Our key performance indicators reflected excellent player retention, acquisition and cross-selling in the quarter, as unique monthly payers increased by 32% and average revenue per unique monthly payer grew by 19%.”

“We are increasing the midpoint of our 2022 revenue guidance to $1.93bn given new state launches and strong underlying performance trends.”

DraftKings shares have fallen 62.1% in the past 12 months and were down 19.7% in 2022 before today’s decline. The selloff was fueled by investors concerns about rising competition in the US sports betting industry.

DraftKings stock price plunged 16.7% premarket to trade at $18.38, falling from Thursday’s closing price of $22.06.

*This is not investment advice. Always do your due diligence before making investment decisions.

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