On Thursday after the market closed DraftKings Inc. (NASDAQ: DKNG) reported better than expected 3Q 2023 financial results, while boosting its full-year 2023 revenue and adjusted EBITDA guidance.
The company’s revenue reached US$790 million in the quarter, up 57% from US$502 million in 3Q 2022, and well ahead of the analysts’ consensus 3Q 2023 estimate of about US$707 million. Similarly, 1Q 2023 adjusted EBITDA improved to negative US$153 million in 3Q 2023 from a loss of US$246 million in the year ago period.
Furthermore, the company raised the midpoints of its full-year 2023 revenue and adjusted EBITDA guidance ranges to US$3.695 billion and a loss of US$105 million, respectively. Both figures are much improved from DraftKings’ previous projections (issued in early August 2023) of US$3.5 billion and a loss of US$205 million.
DRAFTKINGS INC.
| (in thousands of US dollars, except for shares outstanding) | Full Year 2024E | Full Year 2023E | 3Q 2023 | 2Q 2023 | 1Q 2023 |
| Average Monthly Unique Payers (MUP) | 2,300,000 | 2,100,000 | 2,800,000 | ||
| Average Revenue Per MUP, in US dollars | $114 | $137 | $92 | ||
| Revenue (A,B) | $4,650,000 | $3,695,000 | $789,957 | $874,927 | $769,652 |
| Year-over-Year Increase | 25.8% | ~65% | 57% | 88% | 84% |
| Sales and Marketing Expense | $313,323 | $207,487 | $389,133 | ||
| as a % of Revenue | 40% | 24% | 51% | ||
| Adjusted EBITDA (A,B) | $400,000 | ($105,000) | ($153,414) | $72,972 | ($221,611) |
| Adjusted EBITDA Margin | 9% | -3% | -19% | 8% | -29% |
| Operating Income | ($286,586) | ($69,045) | ($389,785) | ||
| Operating Cash Flow | $145,395 | ($17,721) | ($201,492) | ||
| Cash | $1,111,596 | $1,113,715 | $1,087,668 | ||
| Debt | $1,342,147 | $1,320,143 | $1,322,199 | ||
| Fully Diluted Shares Outstanding (Millions) | 487.0 | 488.0 | 479.7 |
Even more important, the company introduced midpoints of full-year 2024 revenue and adjusted EBITDA guidance ranges of US$4.65 billion and positive US$400 million, respectively. Factoring in DraftKings’ enterprise value (EV) of around US$14 billion, this implies the stock trades at an EV-to-2024E revenue and adjusted EBITDA multiples of about 3x and 35x, respectively. DraftKing’s EV-to-2024E revenue multiple looks quite reasonable, particularly for a company which could realize 25% sales growth in 2024.
On the other hand, DraftKings’ EV-to-adjusted EBITDA multiple is high, but the company’s business and expense model allows for a substantial amount of incremental revenue to fall to its bottom line. For example, the company anticipates that its revenue should increase about US$1 billion in 2024 versus 2023 (US$4.65 billion versus US$3.695 billion), and about half of that increase will reach its adjusted EBITDA line (positive US$400 million versus a loss of US$105 million).
Expanding into additional state jurisdictions was a key reason for DraftKings’ solid 3Q 2023 results. Another factor is the company’s ability to control its sales and marketing expenses. Such costs, which are necessary to acquire and retain customers, totaled US$313 million in 3Q 2023, equivalent to about 40% of revenue. By comparison, sales and marketing costs were US$322 million in the year-ago period, amounting to a whopping 64% of sales.
READ: DraftKings Sees First Positive Adjusted EBITDA In Q2 2023
While impressive on many counts, DraftKings’s 3Q 2023 revenue increase of 57% on a year-over-year basis represented a notable step down from 80+% gains in each of the previous four quarters. Revenue growth is expected to slow further to around 25% in 2024. (Of course, it should be said that 25% annual revenue growth is tough to achieve for any company off a US$3.7 billion 2023 revenue base.)
DraftKings shares have approximately doubled since year-end 2022, so it is far from an undiscovered stock by investors; however, few companies which are likely to be profitable and which trade at a fairly reasonable EV-to-revenue multiple are poised to show revenue growth of 25% in 2024. Consequently, DraftKings, which has about a 30% market share in the online gambling market, could be an interesting speculative play for a risk-oriented investor.
DraftKings Inc. last traded at US$33.75 on the NASDAQ.
Information for this story was found via Edgar and the sources and companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
