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Can DraftKings Sustain Blistering Revenue Growth?

Mobile gambling has been growing revenue at a blistering pace for the past several years. A big reason for that was the boost created by pandemic lockdowns when folks could not visit casinos to place wagers. Mobil gambling leader DraftKings (NASDAQ: DKNG) was one of the top beneficiaries.
Casinos have been allowed to reopen, gambling enthusiasts are feeling more comfortable returning to crowded casinos, and DraftKings expects a slowdown this year as a result. The company has also been working hard to develop new markets but has encountered some challenges along the way.
Image source: Getty Images.

DraftKings is scheduled to report fiscal 2022 first-quarter earnings before the markets open on Friday, May 6. Investors will be keeping a close eye on the report to see how the online gaming giant is managing the changing consumer behavior it’s seeing in 2022. 
Revenue growth is expected to decelerate in 2022 
DraftKings has impressively accelerated revenue growth for three straight years, posting sales increases of 17.9% in 2018, 42.9% in 2019, 90% in 2020, and 110.9% in 2021. Those last two increases were clearly influenced by the pandemic, but as shown in the chart below, DraftKings was increasing even before the pandemic surge.

DKNG Revenue (Annual) data by YCharts
A factor just as influential as the pandemic to this revenue growth story has been DraftKings’ expansion into new markets. As a gambling business, it must apply for access to each new jurisdiction (state) in which it wants to offer its services. In that regard, it’s making healthy progress. DraftKings operations are now live in 17 states for mobile sports betting, representing 36% of the U.S. population. iGaming is growing slower, with authorized operations in just five states, representing 11% of the population.
Most interestingly, DraftKings recently launched in New York state. That market has the potential to generate $1 billion in gross gaming revenue annually. To put that figure into context, DraftKings earned $1.3 billion in revenue in 2021. Revenue from the new market had not started flowing in its most recent quarter, which ended Dec. 31, when DraftKings increased revenue by 47% from the same quarter the year before.
Management liked the results and raised the target for the rest of 2022 by seven percentage points. It now expects revenue growth between 43% and 54%, which would be a deceleration from the 111% in 2021.
What this could mean for DraftKings investors
Analysts on Wall Street expect DraftKings to report Q1 revenue of $414.36 million and a loss per share of $1.16. If the company meets those projections, it will represent a revenue increase of 32.7% and an EPS loss decrease of 33%, respectively, from the same period the year before.

DKNG Net Income (Annual) data by YCharts
DraftKings invests aggressively with each new state it gains access to, aiming to attract customers rapidly. The spending on sales and marketing leads to massive losses on the bottom line. It’s no secret that the market is quickly falling out of love with unprofitable growth stocks, and DraftKings stock has been hammered, falling about 78% off all-time highs. To stop the bleeding, management will likely need to discuss profitability targets and when investors can expect these targets to be hit. Otherwise, continued unprofitable growth is unlikely to change the stock price narrative. 
Parkev Tatevosian has positions in DraftKings Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. –

Mobile gambling has been growing revenue at a blistering pace for the past several years. A big reason for that was the boost created by pandemic lockdowns when folks could not visit casinos to place wagers. Mobil gambling leader DraftKings (NASDAQ: DKNG) was one of the top beneficiaries.

Casinos have been allowed to reopen, gambling enthusiasts are feeling more comfortable returning to crowded casinos, and DraftKings expects a slowdown this year as a result. The company has also been working hard to develop new markets but has encountered some challenges along the way.

Image source: Getty Images.

DraftKings is scheduled to report fiscal 2022 first-quarter earnings before the markets open on Friday, May 6. Investors will be keeping a close eye on the report to see how the online gaming giant is managing the changing consumer behavior it’s seeing in 2022. 

Revenue growth is expected to decelerate in 2022 

DraftKings has impressively accelerated revenue growth for three straight years, posting sales increases of 17.9% in 2018, 42.9% in 2019, 90% in 2020, and 110.9% in 2021. Those last two increases were clearly influenced by the pandemic, but as shown in the chart below, DraftKings was increasing even before the pandemic surge.

DKNG Revenue (Annual) data by YCharts

A factor just as influential as the pandemic to this revenue growth story has been DraftKings’ expansion into new markets. As a gambling business, it must apply for access to each new jurisdiction (state) in which it wants to offer its services. In that regard, it’s making healthy progress. DraftKings operations are now live in 17 states for mobile sports betting, representing 36% of the U.S. population. iGaming is growing slower, with authorized operations in just five states, representing 11% of the population.

Most interestingly, DraftKings recently launched in New York state. That market has the potential to generate $1 billion in gross gaming revenue annually. To put that figure into context, DraftKings earned $1.3 billion in revenue in 2021. Revenue from the new market had not started flowing in its most recent quarter, which ended Dec. 31, when DraftKings increased revenue by 47% from the same quarter the year before.

Management liked the results and raised the target for the rest of 2022 by seven percentage points. It now expects revenue growth between 43% and 54%, which would be a deceleration from the 111% in 2021.

What this could mean for DraftKings investors

Analysts on Wall Street expect DraftKings to report Q1 revenue of $414.36 million and a loss per share of $1.16. If the company meets those projections, it will represent a revenue increase of 32.7% and an EPS loss decrease of 33%, respectively, from the same period the year before.

DKNG Net Income (Annual) data by YCharts

DraftKings invests aggressively with each new state it gains access to, aiming to attract customers rapidly. The spending on sales and marketing leads to massive losses on the bottom line. It’s no secret that the market is quickly falling out of love with unprofitable growth stocks, and DraftKings stock has been hammered, falling about 78% off all-time highs. To stop the bleeding, management will likely need to discuss profitability targets and when investors can expect these targets to be hit. Otherwise, continued unprofitable growth is unlikely to change the stock price narrative. 

Parkev Tatevosian has positions in DraftKings Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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