DraftKings (DKNG) sees the way to profitability

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DraftKings mobile screen – Photo: Shutterstock
DraftKings Stock (Nasdaq: DKNG) 2000 - March 3, 2022DraftKings Stock (Nasdaq: DKNG) 2000 – March 3, 2022

DraftKings (DKNG) sees reduced customer acquisition costs and path to profitability as it maintains market share with heavy ad spending in states gradually legalizing online sports betting, executives said during of its Investor Day 2022 virtual presentation on Thursday.

DraftKings also adjusted its 2022 Adjusted EBITDA estimate to $2.10 billion (£1.57 billion) from $1.70 billion, before taking into account the pending acquisition of Golden Nugget Online or other new initiatives currently underway.

DraftKings stock traded down 11.3% on Thursday to $20.89 from the opening price of $23.55. DraftKings is down 24.7% year-to-date and 70.9% from its all-time high of $71.98 set in March 2000. DraftKings trades on the Nasdaq exchange under the symbol DKNG.

DraftKings (Nasdaq: DKNG) YTD stockDraftKings (Nasdaq: DKNG) stock YTD – Photo: Koyfin

Customer acquisition costs decrease as the market matures

Boston, Mass.-based DraftKings justified its 70% to 80% of revenue spent on acquisition costs by believing that the top three online sports betting platforms typically control 80% of each market over the course of the year. third year following legalization.

He added that DraftKings “has more than enough capital to execute our profitability plan.” DraftKings reported over $2 billion in cash and cash equivalents on the books at year-end 2021.

Cash and cash equivalents of DraftKings as of December 31, 2021DraftKings cash and cash equivalents as of December 31, 2021 – Photo: DraftKings 10-K

While no universally accepted market share data is available and using state revenue totals can be misleading as each state uses different calculation methods, DraftKings estimates it holds a 32% share of the total. online sports betting in the United States (excluding Nevada where sports betting has been legal since 1949), by the end of 2021.

“In mature markets, like New Jersey, the top three online sportsbooks account for 80% of gross gaming revenue,” Jason Robins, CEO of DraftKings, noted during the virtual conference. As a result, after New Jersey’s $68 million in contribution profits in 2021, Robins expects profitability to grow rapidly in the Garden State this year.

After the second year of operation in one state, Robins predicts that DraftKings’ customer acquisition costs will drop to 20%, or even high rates for teens as a percentage of revenue, as seen in the European market, where sports betting has been legal for years. .

DraftKings Nasdaq:DKNG) estimated earningsDraftKings Nasdaq: DKNG) estimated earnings at market maturity – Photo: DraftKings Inc.

“We expect an EBITDA margin above 30% at full maturity,” added Robins.

The significant customer acquisition costs are therefore justified in the short term due to high retention rates combined with an increase in betting activity per user over time. DraftKings estimates a customer retention rate of over 80% and a revenue retention rate of over 120%, which offsets customer churn.

“We have a path to profitability,” Robins noted. “The second year to the third year is better for the profitability of the contribution” in any new market.

Robins conceded, however, that as the only online gambling platform available in the bordering states of Pennsylvania, New Jersey, New York and Connecticut, the marketing spend crosses state lines.

At full maturity, approximately five years after 65% of the US population has access to legal sports betting and 30% has access to legal iGaming (assuming Canada legalizes online sports betting and iGaming for 64% of its population), DraftKings predicts up to $6.7 billion in revenue, as long as it can maintain at least 25% market share in betting and 22.5% in iGaming.

Initiatives without bets

In the iGaming business, DraftKings has developed its own proprietary gaming products, in addition to standard casino games. DK Studio, DraftKings’ in-house development platform, has created over 50 games played on the app.

The most successful, Robins added, DK Rocket, was introduced last August and has over 90,000 users to date.

DraftKings DK Rocket iGaming ProductDraftKings DK Rocket iGaming Product

Another area of ​​future growth for DraftKings is its non-fungible token (NFT) NFT marketplace, which Robins says “illustrates that non-gaming products are a big part of our future.”

A gamified NFT product in collaboration with the National Football League (NFL) Players Association is set to launch ahead of the start of the 2022 NFL season in September.

Similar to its daily fantasy sports offering, the owner of an individual player’s NFT would be rewarded based on that player’s performance in the game.

“Last year at this time, I had never even heard of an NFT,” Robins joked.

DraftKings NFT MarketDraftKings NFT Marketplace – 2022 DraftKings Inc. Investor Presentation

State Gaming Initiatives

Robins expressed hope that New York State would reduce its highest in the country 51% tax on gaming revenue, or at least allow gaming companies to deduct marketing expenses from tax liability.

Additionally, a petition is currently gaining momentum in California to allow a ballot initiative legalizing online sports betting. With a population of approximately 40 million and 14 teams playing in the four largest American professional sports leagues, California is the largest potential gaming market for the online sports betting industry.

“We hope to be on the (California) ballot in 22,” Robins added.

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