DraftKings
Analysts: Deutsche Bank, Macquarie, Credit Suisse, Truist Securities, Jefferies
Extending losses: Deutsche Bank (hold) suggested the marginally worse than expected EBITDA losses performance in Q1 has led expectations for losses for the year to “migrate lower” – they are now projecting losses of $551m versus prior estimates of $460m. The revenue beat was due to an unspecified benefit from a high hold percentage. This is unlikely to last. DB noted that intense competition, via tight pricing, “could put pressure on hold percentages, in addition to the normal volatility of the business, which tends to normalize over time.” Truist (hold) noted that rising sales and marketing costs would continue to grow with Q3 EBITDA losses likely to be the “deepest”.
I used to be a King: Recent commentary from BetMGM suggested it believes it’s vying for second place behind FanDuel and the team at Macquarie (outperform) indeed estimate DraftKings has lost market share. But Macquarie’s analysts went on to say that earnings call announcements on media, technology improvements and the new social functionality represent a successful effort to “fortify (DraftKings’) mousetrap.” Meanwhile, Credit Suisse (outperform) suggested the social innovations would provide good “differentiation.” Ahead of the earnings call, Jefferies (buy) said the company had provided “strategic substantiveness.”
“Our take from the quarter is that DKNG remains on track to grow as a first-mover from multiple perspectives: technological integration, product breadth and ultimately revenue.”
However, the market’s post-call reaction was less enthusiastic, sending the shares down over 6.5% on a generally bad day for gaming stocks.
Walk on the wild side: DB noted that management said little about its chances of finding a licensed berth in either New York or Florida after what the analysts term a “largely disappointing” quarter on the regulatory front. As the DB team says, while DraftKings will certainly attempt to qualify as a platform provider in NY – and then utilising one of the two available skins – from there “the process gets more confusing and ambiguous.” Credit Suisse believes DraftKings is the front runner in NY. “We think it makes sense for DKNG to partner with one of the other leaders in the space to make the bid/proposal more attractive and then allocate themselves the two licenses.”
Come on feel the Illinois: DB noted that Illinois was a tailwind in Q1 due to the unexpected benefit of having mobile registration available for the whole of the three months. As is detailed below (see Illinois March data), with in-person registration back in force as of early April, it potentially puts DraftKings at a disadvantage given the geography of its partner casino in East St Louis. However, DB said that given management’s comments on having built up a sizeable player base while in-person was suspended, it shouldn’t have a dramatic near-term impact on market share.
