DraftKings raised its full-year revenue guidance for 2021 on Friday, following a strong opening quarter accentuated by continued state-by-state expansion and key media and software acquisitions.
The encouraging outlook comes roughly a year after DraftKings made its public debut, following the completion of a business combination with SBTech and Diamond Eagle Acquisition Corp. (DEAC), a special-purpose acquisition company. DraftKings now anticipates revenues this year to fall within a range of $1.05-$1.15 billion, up from previous forecasts in February between $900 million and $1 billion. The increased guidance reflects effective marketing spending, solid customer activation, and quick starts in Michigan and Virginia, two states where the company launched online sports betting during the first quarter.
For the three-month period ended March 31, DraftKings generated revenue of $312 million, a year-over-year increase of 175% on a pro-forma basis. Wall Street forecasts anticipated quarterly revenue of $222.6 million, according to the Zacks Consensus Estimate. It should be noted that revenues among top sportsbooks plunged over the first quarter of last year due to the global sports freeze brought about by the COVID-19 pandemic.
A return to normalcy in sports
The Boston-based DFS-turned-sportsbook company also credits the return of a normal sports calendar in 2021 for the increased revenue guidance. DraftKings is on track to complete the move to an in-house technology platform powered by SBTech by the end of the third quarter, CEO Jason Robins said on Friday.
“DraftKings is off to an outstanding start in 2021,” Robins said in a statement. “We continued to make progress and remain on track with the migration to our own in-house proprietary sports betting engine, strengthened our content and technology capabilities with the acquisitions of VSiN and BlueRibbon Software, and invested in further differentiating our product offering.”
DraftKings raises full-year guidance, expecting a return in sports https://t.co/pdCOruBGNB
— CNBC (@CNBC) May 7, 2021
At present, DraftKings is live with online sports betting in 12 states that represent about 25% of the U.S. population, according to the company. The revenue guidance does not include the potential rollout of mobile sports betting in Arizona, New York, and Wyoming before the end of the calendar year, DraftKings CFO Jason Park said during Friday’s conference call. The three states represent an additional 8% of the population nationwide.
DraftKings’ transition to an in-house betting engine powered by SBTech is ostensibly one of the industry’s most anticipated events of 2021. The migration will take place on a state-by-state basis, Robins said, adding that the full implementation may be completed ahead of schedule.
Robins noted that DraftKings has begun internal testing of the tech platform, a process he has been encouraged with so far. Despite cleaning up some minor technicalities “around the edges,” Robins has been pleased with the predictive capabilities that the platform offers.
“As we get closer to the full migration, we’ll have more states migrated and more data to look at, but from what we’re seeing so far, everything’s going great,” Robins said.
$DKNG – Q1 results strong and guidance raised, but both appear to be anticipated; Jefferies looks for progress on 'complex state legalizations': "stock reaction lie in commentary regarding recent complex state legalizations and tech platform" https://t.co/UFC2iRa4gZ @DraftKings pic.twitter.com/REPidZiYih
— street-guru.com (@StreetGuruHQ) May 7, 2021
A deep dive into MUPs
Over the quarter, DraftKings increased monthly unique payers (MUPs) to 1.54 million, eclipsing Factset estimates of 1.31 million for the period. By comparison, DraftKings reported MUPs of about 720,000 during last year’s first quarter, one interrupted by the cancellation of March Madness and the global sports freeze. DraftKings defines MUPs as the number of unique customers who placed a wager on a real-money DFS contest, sports bet or casino game.
At the same time, DraftKings also saw encouraging results with another metric it calls “ARPMUPs,” or average revenue per MUP. For the quarter, DraftKings’ ARPMUPs rose 48% from $41-$61 per customer. Robins appeared pleased by retention levels of customers the company acquired in the second half of 2020, adding that it served as the largest driver for the increase in MUPs.
While Park expects both metrics to increase in the coming months, he anticipates that MUPs will increase at a higher rate than ARPMUPs for the remainder of the year.
As with other top U.S. sportsbook operators, the road to profitability at DraftKings appears to be lengthy. With net losses in excess of $345 million on the quarter, DraftKings reported adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of negative $139.3 million. Although DraftKings is not offering full-year guidance for adjusted EBITDA, Park noted that sales and marketing expenses remain as a key input. For the quarter, those expenses swelled to $229 million, up 19.3% from the three-month period ended Dec. 31, 2020. Eventually, Park expects DraftKings’ marketing expenses to moderate on a state-to-state basis as the company continues to expand into new states.
Adj. 1Q rev of $312MM +175% y/y vs consensus $228MM
-MUPs/ARMUP came in at 1.54MM/$61 (+114%/49% y/y).
Raised FY21 $1.05-1.15B vs. (.9-$1B)@tpsojda @Crussian17 @plantmath1 @ParrotStock @OphirGottlieb @MrBuyside @BahamaBen9 @WOLF_Financial @dhaval_kotecha pic.twitter.com/QRSm1I24nL
— Special Situations Research Newsletter (Jay Singh) (@Jagdeep91554338) May 7, 2021
DraftKings reported a quarterly loss per share of 36 cents, compared with losses per share of 18 cents in last year’s first quarter. Per-share losses, however were expected to accelerate to 51 cents, according to top equities analysts.
Earlier this spring, DraftKings increased the company’s long-term adjusted EBITDA estimate to $1.7 billion annually during an Investor Day presentation. The projection is based on the assumption that DraftKings will attain U.S. market share of 25% and 17% in online sports betting and iGaming, respectively. Per DraftKings’ internal estimates, the company achieved online sports betting market share nationwide of 30% during the fourth quarter of 2020 in the states the company operates in.
DraftKings’ shares rose moderately on news of the increased revenue guidance, hitting a session high of $53.51 on Friday morning, before retreating somewhat in seesaw trading. At one point on Friday, DraftKings slid below $50 a share, falling to its lowest level since January.