The first quarter of 2023 has seen multiple online gambling brands in the United States tout their proximity to actually turning profits. DraftKings is among them. However, there is one major difference between it and the rest of the field.
DraftKings elevated its guidance for the remainder of 2023 after earnings beat projections in the first quarter. Should DraftKings continue to defy its own expectations, it might prove that it is in rarified air.
DraftKings shares Q1 2023 statistics
According to a Thursday press release from DraftKings, the US online gambling company’s hunt for profitability might soon end. In terms of its raw numbers and how they compare to previous performances, the news is mostly positive.
- $769.6 million in revenues, up 84% from Q1 2022
- An adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) loss of $221.6 million, besting Q1’s loss of $289.5 million
- A net loss of $397.1 million, 15.1% less than the net loss in Q1 2022
- Earnings per share (EPS) loss of $0.87, down from Q1 2022’s $1.14 EPS loss
DraftKings had projected its revenue for the quarter to be almost $73 million less than the actual number. As a result, the company now expects to rake in over $3.2 billion in revenue for 2023.
Additionally, DraftKings says it now projects its adjusted EBITDA for the entire year to land somewhere between a loss of $290 million and $340 million.
In the short term, the numbers had the desired effect for DraftKings. Its stock price on NASDAQ elevated by nearly 10% in the waning hours of Thursday. Additionally, Seeking Alpha lauded the company’s performance by pointing out that when isolated for non-GAAP (Generally Accepted Accounting Principles) measures, DraftKings’ EPS for the quarter of -$0.51 bested consensus projections by an impressive $0.25.
Perhaps the most eye-catching part of DraftKings’ report is that the company anticipates breaking even or coming quite close to it in the second quarter. Depending on your perspective, that isn’t too far-fetched.
Could DraftKings crown itself a profitable company soon?
If DraftKings stays on its current course, it could actually get to use the “p word” (profit) in 2024. However, a lot of things have to go right for that to happen. Additionally, DraftKings would buck a recent trend if it does indeed turn a profit employing its current strategy.
While companies like Caesars Entertainment and Rush Street Interactive have chased profitability by cutting expenses, DraftKings has gone the opposite way. For example, its Q1 balance sheet shows that it increased its marketing spend by 17.4% compared to the same period in 2022.
To some degree, the spending has worked. DraftKings says it grew its customer base by 39% over the last year. Furthermore, DraftKings claims that the average revenue it is gleaning from those users is up 35%.
At the same time, there’s a natural ceiling for this method of growth. The looming question in that regard is always; what do you do when there are no more customers to acquire and you can’t get your existing ones to give you any more of their money?
The outlook for DraftKings in the near and far future
DraftKings could face that very circumstance in the remainder of 2023. It’s possible that Kentucky and perhaps Maine could launch their legal online sportsbooks later this year. If DraftKings can get into both markets, that would represent some acquisition opportunities.
Maine regulators seem to be in no hurry, though. Additionally, it’s possible that Kentucky might not allow sportsbooks to go live until very late in the year. Currently, those are the only new market launches that DraftKings can at all plan for in 2023.
For that reason, DraftKings might bank on its share of the ever-expanding online casino market in a handful of states to reach its goal of breaking even in Q2. DraftKings is among the Pennsylvania online casino market leaders, combining with BetMGM Casino to account for 42% of the record-breaking March revenue in that state.
In Michigan, DraftKings Casino just set a new single-month revenue record for itself as well. Golden Nugget Casino, which is a DraftKings holding, has entrenched itself as one of the strongest-performing brands among New Jersey online casinos.
DraftKings being unafraid to use capital to increase its market share could take on another dimension, too. Several of its current competitors, like Rush Street Interactive, might be acquisition targets. That could be a quick, however expensive, step in DraftKings’ plan to reach profitability by scale.
There will be competition for the available acquisition targets like PointsBet, though. DraftKings’ progress toward making a profit could only act as a motivator to continue on the present course. If you’re a shareholder concerned about the company’s spending, perhaps DraftKings is not the stock for you.