DraftKings’ stock rose as much as 5% in pre-market trading after the company posted impressive earnings for Q4 2020, CNBC reports.
Numbers To Consider:
- Quarterly Revenue: $322 Million
- Quarterly Net Loss: $266.4 Million
- Monthly Unique Paying Customers: 1.5 Million
- Revenue Per Monthly Unique Payer: $65
A History Lesson: Sports gambling has exploded in the U.S. since the Supreme Court ruled in 2018 that the Professional and Amateur Sports Protection Act of 1992, which essentially outlawed sports betting nationwide, was unconstitutional.
- DraftKings went public by a SPAC merger last April, valuing the company at $2.7 billion. The company now has a $22.6 billion market cap as of pre-market Friday.
Looking Ahead: With Q4 success in their pocket, DraftKings announced an increased revenue guidance for fiscal year 2021.
- The initial outlook called for $750 million to $850 million in revenue but now expects to fall into a range of $900 million to $1 billion.
- DraftKings “pointed to strong user activation due to its 2020 marketing spend, the launch of mobile sports betting and iGaming in Michigan and mobile sports betting in Virginia, and its performance in the fourth quarter.”
Expanding Field: Right now, only 20 states, plus Washington, D.C., have legal online sports gambling. It’s an increase from 19 last quarter, and five more have legalized but aren’t operational yet. Sixteen more are working on legislation.
DraftKings ($DKNG) is growing revenues at a 50% pace, but it is still deeply unprofitable with a -$392 million in EBITDA, on the back of large Sales and Marketing expenses.
DraftKings claims to have internal ROI models with which they use to inform marketing spend, but we still haven’t seen them come out with what their marketing ROIs are.
Regardless, at $61 per share, the company is trading at a $22.5 billion valuation, or 25.9x 2021 Revenue and 56.4x 2021 Gross Profit (analyst estimates). This doesn’t seem like a valuation I would want to invest behind in a growth stock sell off.