Shares of DraftKings fell roughly 20% following the company’s fourth-quarter earnings call. One potential reason is the $981.5 million spent on marketing.
As of writing, $DKNG shares were trading at $17.88 per share, down -18.99%.
Despite big-spending to gain customers, DraftKings did post-better-than-expected revenue of $473 million, up 47% from last year.
Sports betting launch comes at a cost
DraftKings CEO Jason Robins told analysts the overall cost of launching in new markets like New York has been higher.
“Typically the first year, sometimes two years, of customer acquisition is the strongest cohorts that you acquire and I think it’s really important that we continue to invest there.”
During the call, Robins said the company signed up 100,000 first-time paid bettors in New York in less than 24 hours. By comparison, it took 17 days in Arizona and 170 days in New Jersey to reach that total.
Robins added that the company has a two-to-three-year path to profitability in New York. Last year, DraftKings was part of a collection of nine operators approved to launch in New York sports betting.
The group includes:
- Bally Bet
- Resorts World
- Rust Street Interactive
- WynnBet (Kambi)
According to the company, had it not launched in New York and Louisiana at the tail end of last year, it would have turned an adjusted profit.
DraftKings now doesn’t expect to generate positive adjusted EBITDA until the fourth quarter of 2023.
The weight of marketing cost played a contributing factor to the company’s earnings. It posted a quarterly loss of $326.3 million, bigger than the $242.7 million loss it posted a year earlier.
According to DraftKings, sales and marketing costs in the final three months of the year grew 45%, and that didn’t include New York. Total operating cost grew $842 million compared to $591 million in the previous year.
Looking ahead to 2022-2023
One bright note during the earnings call was the increased revenue guidance for 2022.
DraftKings raised its revenue guidance to a range of $1.85 billion to $2 billion. This is up from previous projections of $1.7 billion to $1.9 billion.