CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

DraftKings (DKNG) sees path to profitability

By Kevin Donovan

19:19, 3 March 2022

DraftKings screen on cell phone
DraftKings screen on cell phone - Photo: Shutterstock
DraftKings (Nasdaq: DKNG) stock 2000 - 3 March 2022DraftKings (Nasdaq: DKNG) stock 2000 - 3 March 2022

DraftKings (DKNG) sees a reduction in customer acquisition costs and the path to profitability, as it maintains its market share with heavy ad spending in states incrementally legalising online sports betting, executives said during its 2022 Investor Day virtual presentation on Thursday.

DraftKings also adjusted its 2022 adjusted EBITDA estimate to $2.10bn (£1.57bn) from $1.70bn, before factoring in the pending Golden Nugget Online acquisition or other new initiatives currently in its pipeline.

DraftKings stock traded 11.3% lower Thursday to as low as $20.89 from the $23.55 opening share price. DraftKings is down 24.7% year to date and 70.9% off its $71.98 all-time high set in March 2000. DraftKings trades over the Nasdaq exchange under the ticker DKNG.

DraftKings (Nasdaq: DKNG) stock YTDDraftKings (Nasdaq: DKNG) stock YTD - Photo: Koyfin

Customer acquisition costs decline as market matures

Boston, Massachusetts-based DraftKings justified its high 70% to low 80% of revenue spent for acquisition costs with the belief that the top three online sports betting platforms typically control 80% of each market by the third year after legalisation.

He added DraftKings “has more than sufficient capital to execute our plan to profitability.” DraftKings reported over $2bn in cash and cash equivalents on the books as of year-end 2021.

DraftKings cash and cash equivalents as of 31 December 2021DraftKings cash and cash equivalents as of 31 December 2021 - Photo: DraftKings 10-K

While no universally accepted market-share data is available and using state revenue totals can be misleading due to each state using different calculation methods, DraftKings estimates it has a 32% share of the total US online sports betting handle (excluding Nevada where sports betting has been legal since 1949), as of year-end 2021.

“In mature markets, like New Jersey, the top three online sportsbooks account for 80% of gross gaming revenue,” noted DraftKings CEO Jason Robins during the virtual conference. As a result, after New Jersey’s $68m of contribution profit in 2021, Robins expects profitability to ramp up quickly in the Garden State this year.

After the second year of operating in a state, Robins predicts DraftKings customer acquisition costs will decline to the low 20% to even high teen rates as a percentage of revenues, as one sees in the European market, where sports betting has been legal for years.

DraftKings Nasdaq:DKNG) estimated revenueDraftKings Nasdaq:DKNG) estimated revenue at market maturity - Photo: DraftKings Inc.

“We expect a greater than 30% EBITDA margin at full maturity,” Robins added.

The large customer acquisition costs are therefore justified in the near term due to high retention rates combined with increased per-user wagering activity over time. DraftKings estimates a greater than 80% customer retention rate and a greater than 120% revenue retention rate, which offsets the customer churn.

“We have a path to profitability," Robins noted. “Year two into year three is better for contribution profitability” in any new market.

Robins conceded, however, that as the only online gaming platform available in bordering states Pennsylvania, New Jersey, New York and Connecticut, the marketing spend bleeds over state lines.

XRP/USD

0.54 Price
+4.370% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

US100

18,661.20 Price
+0.610% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 7.0

ETH/USD

3,588.11 Price
+13.960% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

BTC/USD

69,440.00 Price
+5.050% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

At full maturity, or roughly five years after 65% of the US population has access to legal sports betting and 30% has access to legal iGaming (assuming Canada legalises online sports betting and iGaming for 64% of its population), DraftKings predicts up to $6.7bn in revenue, as long as it can maintain at least a 25% market share in betting and 22.5% in iGaming.

What is your sentiment on DKNG?

44.80
Bullish
or
Bearish
Vote to see Traders sentiment!

Non-betting initiatives

Within the iGaming sector, DraftKings has developed its own proprietary gaming products, in addition to the standard casino games. DK Studio, DraftKings’ in-house development platform has created over 50 games played over the app.

The most successful, Robins added, DK Rocket, was introduced last August and has over 90,000 users to date.

DraftKings DK Rocket iGaming productDraftKings DK Rocket iGaming product

 

Another future growth area for DraftKings is its non-fungible token (NFTs) NFT Marketplace, which Robins said “illustrates non-gaming products are a big part of our future.”

A gamified NFT product in collaboration with the National Football League (NFL) Players Association is ready to launch before the start of the 2022 NFL season in September.

Similar to its daily fantasy sports offering, the owner of an individual player’s NFT would be rewarded based on the in-game performance of that player.

“Last year at this time, I’d never even heard of an NFT,” Robins quipped.

DraftKings NFT MarketplaceDraftKings NFT Marketplace - DraftKings Inc. 2022 Investor Presentation

State gaming initiatives

Robins expressed a hope New York State would lower its highest-in-the-nation 51% tax on gaming revenue, or at least allow gaming companies to deduct marketing expenditures from the tax liability.

Additionally, a petition is currently gaining support in California to allow a ballot initiative legalising online sports betting. With a population totalling roughly 40 million – and 14 teams playing in the four largest American professional sports leagues – California is the largest potential gaming market for the online sports betting industry.

“We hope to be on the (California) ballot in '22” Robins added.

 

Markets in this article

DKNG
DraftKings Inc.
44.80 USD
0.45 +1.020%
DKNG
DraftKings Inc.
44.80 USD
0.45 +1.020%

Rate this article

Related reading

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that Capital.com believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

Still looking for a broker you can trust?

Join the 610,000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading