The Real Super Bowl Winner: DraftKings

Key Points

• Early data suggests DraftKings won market share on Super Bowl Sunday.
• DraftKings reports a record quarter, and looks to profitability by the end of the year.
• The three key catalysts for DraftKings and sports betting stocks.

Sportsbook giant DraftKings NASDAQ: DKNG was up 18% in early trading on Friday following strong earnings results, logging huge wins on revenue, repeat customers, and cost-cutting.

The report comes just a week after Super Bowl Sunday, the sportsbooks' biggest event of the year. Early data indicates that DraftKings might've stolen market share over the weekend as the most downloaded mobile app in the US on the day of the big game.

The positive earnings report provides additional tailwinds to an already blockbuster year for the company, which has seen its stock soar nearly 90% year-to-date.

DraftKings Reports Strong Q4 Earnings

DraftKings hit it out of the park with their Q4 report. They notched an 81% spike in year-over-year revenues, pulling in a record $855 million. In addition, their key Monthly Active Players (MUP) metric climbed 31% and squeezed out 42% more revenue per player. 

After splurging on market share back in 2021, DraftKings is on a campaign to tighten the purse strings and get more disciplined with costs. The shift in strategy seems to be paying off, as DraftKings easily beat adjusted EBITDA estimates, posting a loss of just $49.9 million versus the $112 million projected by Wall Street.

They look to parlay their market share gains and cost-cutting discipline into profitability. They estimate the fourth quarter of 2023 will be their first profitable quarter when measured using adjusted EBITDA.

DraftKings Wins Big on Super Bowl Sunday

DraftKings' positive report comes on the heels of the Super Bowl, the biggest sports betting event of the year. With the game drawing in the third-largest TV audience of all time and the tradition of placing bets on the outcome, sportsbooks looked to capitalize on the event to win over many customers at a reduced cost.

DraftKings seems to have made significant market share gains, as indicated by early data. For one, DraftKings' mobile app was the most-downloaded sports betting app on Super Bowl Sunday, according to CEO Jason Robins, who announced their Q4 earnings call.

Moreover, GeoComply, a geolocation-tracking firm used by sportsbooks, reported a 32% year-over-year increase in registrations during the Super Bowl weekend. The data suggests mobile sportsbooks are seeing strong growth at the expense of Nevada sportsbooks, which had their lowest betting volumes since 2019.

The Super Bowl's volume leaders can serve as a bellwether for the industry. The early data suggests DraftKings is on the rise.

Where Things Stand Today

So it seems like the market just threw DraftKings a fat pitch, and the upward trend could suggest the turnaround in gambling stocks is in the early innings. But to avoid a repeat of last year, the company must continue to expand its market share and revenue while keeping a tight grip on expenses.

The intense competition in the industry led many firms like DraftKings to spend recklessly to acquire market share. As a result, DraftKings stock is still down almost 75% from 2021 highs, even given the solid open to 2023. The rest of the industry saw a similar feat, as the Roundhill Sports Betting & iGaming ETF NYSE: BETZ is down 50% from 2021 highs.

Blue line: DraftKings NASDAQ: DKNG | Red line: Sports Betting ETF NYSE: BETZ

 

Three Key Catalysts

Three key catalysts will drive DraftKings stock: controlling customer acquisition costs, expanding their total addressable market, and their ability to endure the stiff competition in the industry.

Controlling Costs

DraftKings' efforts to cut costs could easily be reversed if they engage in a market share battle with FanDuel. To gauge the level of spending, investors should track DraftKings' upcoming reports and those of competitors and the overall level of betting promotions offered. This will give an idea of how much firms spend to acquire customers.

Expanding the Total Addressable Market

DraftKings is set to enter Puerto Rick and Massachusetts pending regulatory approval, which covers 3% of the population. But the real game-changer is the pending sports betting legislation in 10 US states that cover 19% of the US population.

Keep an eye on a tracker like the SportsHandle Betting Legislation Tracker to stay informed of upcoming catalysts for the stock.

Weathering The Competition

Investors in DraftKings should track their competition, namely FanDuel, the leader in the US market. DraftKings and FanDuel currently have a duopoly in the US market. Both firms are steadily eating their competitors in BetMGM and Caesars.

Here is a graphic breaking down the US sports betting competitive landscape:

Bottom Line

DraftKings looks to be the Super Bowl winner in the sports betting industry, as the early data suggests. With their stock up almost 90% year-to-date, Wall Street is friendly to sportsbook stocks again.

However, whether an extension in the style of 2021 can develop still needs to be answered. Investors should track incoming data about Super Bowl betting and earnings reports from competitors. A sustained battle for market share could once away scare away investors, as in 2021.