The coronavirus pandemic caused many sports leagues to pause their seasons for months beginning in March. Since DraftKings (NASDAQ:DKNG) relies on its customers to make wagers on the outcome of sporting events, the lack of sports hurt the company significantly.
Fortunately, the NBA, MLB, and NFL all resumed their seasons after the months-long hiatus. When DraftKings reports its earnings on Nov. 13, shareholders will find out if there was pent-up demand to engage in wagering on sporting events.
Regaining momentum as sports leagues restarted
Investors will first want to look at the company's overall revenue growth. In the most recent quarter, it was 25%, which is quite impressive given how much the coronavirus pandemic plagued sports leagues. Assuming no major sports cancellations, the company expects to grow revenue by 30% at the midpoint for the second half of fiscal 2020. The NBA and MLB were already able to complete their seasons and crown the Los Angeles Lakers and the Los Angeles Dodgers, respectively, as champions. Still, with coronavirus cases surging to record highs in the U.S., it remains to be seen if the NFL and other major sports can do the same.
Next, those interested in the stock will want to know more about gambling legalization and its increasing availability in various states. According to DraftKings, as of Sept. 1, its Sportsbook app and website are available in Colorado, Illinois, Indiana, Iowa, New Hampshire, New Jersey, Oregon, Pennsylvania, and West Virginia. The company's standalone casino app is also live in New Jersey, Pennsylvania, and West Virginia. The more states that legalize, the larger the total addressable market becomes for DraftKings. It is also important to note that state budgets have become strained by the pandemic. Legalizing online sports betting is one way states can fill budget gaps without relying on the federal government to pass a stimulus bill.
Finally, shareholders should look at the company's reported monthly unique player (MUP) base and growth. This figure is especially important for the company's daily fantasy sports segment. The more players who enter an event, the larger the prize pool, which then attracts even more players to enter. This positive virtuous cycle is one reason the figure is so important to shareholders. During the six months ended June 30, the company had 507,628 MUPs, which was down from 537,142 from a year ago. The suspension of major sports leagues during the period probably had a say in that drop.
What it could mean for investors
Wall Street's average expectation is for DraftKings to report revenue of $132 million and a net loss per share of $0.61. The company also stated that it expects to report revenue of $132 million at the midpoint when it updated the prospectus for an additional stock offering on Oct 6. The figure would be an increase of 97% from the prior year.
DraftKings is continuing on its path as a high-flying growth stock, but the risk remains that major sports leagues will pause their seasons, setting the company back again. However, it does have over $1.2 billion of cash and no debt on the balance sheet to weather that storm if it needs to.