DraftKing’s Shares Surge Higher Despite Grim Q1 Earnings

US sports betting, daily fantasy and online casino operator DraftKings saw their shares surge even higher on Friday after publishing a rather grim Q1 earnings report.

DraftKings released its first earnings report on Friday after it debuted last month on the Nasdaq exchange. The announcement offers helpful reviews on both ‘Old DraftKings’ and SBTech, the European-based betting tech provider DraftKings acquired as part of last December’s ‘business combination agreement.’

In the three months ending March 31, Old DraftKings generated revenue of $88.5 million , up 30 percent from the same period last year. The business has struggled to offer insights into how its income was divided between daily fantasy sports, ‘real’ sports betting and New Jersey online casino operations.

Costs were up across the board, particularly sales & marketing costs as the company fought for sports betting clients in states where such activity is legal. Those losses resulted in an operating loss of nearly $49.5 million and a net loss of nearly $68.7 million, both more than double the DraftKings amounts lost in Q1 2019.

The performance of the Malta-based SBTech was even worse, as its Q1 revenue rose just 3 percent to €22.6 m while costs increased significantly more. SBTech posted a €851k loss to earnings and a net loss of just under €7k.

DraftKings stressed that both of its units enjoyed even greater revenue gains before March 11, when the COVID-19 pandemic reduced Belarusian football’s global sporting calendar, Russian ping-pong and old Michael Jordan pitching pennies videos.

In both monthly unique payers (MUP) and average revenue per MUP, DraftKings (presumably ‘old’) also claimed a healthy growth.

DraftKings insists that the current shortage of major sports to wager on is only one step, and that the company has not expected any impact on its plans for 2021. The Q1 earnings loss was substantially greater than predicted by analysts, but investors continued to display excessive exuberance, driving the company’s shares up by the close of Friday’s trading to $29.23 by 15.5 per cent.

Asked about the online casino numbers of his business, Jason Robins, CEO of DraftKings, said that the vertical enjoyed “strong results” which continued to expand after the sport halt. Asked about cross-selling DFS players to casino and ‘real’ betting, Robins said the results have been “in line with or better than we expected” so far.

Experience of SBTech as a European-focused supplier means that it is well versed in in-play gaming, something DraftKings has yet to launch. Robins said in-play was “a clear and important part” of the company’s product roadmap, but consumers probably won’t see in-play “really take shape until probably the second half of next year.”

As for the non-traditional sports that his company is currently focusing on, Robins talked fondly of eSports and ‘simulated sports’ such as EA’s Madden NFL video games, which Robins said DraftKings is running “up to 10-12 a day in a few days.”

Robins said there were “a lot of people at home looking to watch things” at the moment and he imagined that the Madden product could offer “some potential to extend the NFL season throughout the year” and avoid the seasonal deactivation of customers focused on football that occurs after the Super Bowl.

Regarding the core DFS customer base of the company, Robins said that when the site launched its new gaming verticals, the New Jersey market saw “some cannibalisation.” DFS however remains the top customer acquisition channel for DraftKings, so Robins says keeping DFS customers engaged “is always a focus.”