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DraftKings Q2 Earnings Preview: Expanding to More States and Reopening Trends

By Parkev Tatevosian, CFA – Aug 4, 2021 at 9:42AM

Key Points

  • Shareholders may get information on expansion to more states.
  • Analysts on Wall Street expect DraftKings to report revenue of $242 million in the second quarter.

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DraftKings has already raised revenue expectations for fiscal 2021. Will it do so again?

Daily fantasy sports, mobile sportsbook, and iGaming company DraftKings (DKNG 4.92%) will report second-quarter earnings on Friday, Aug. 6. Investors will be tuning in for any information the company provides in its attempt to gain access to the potentially lucrative New York market for mobile sportsbooks.

Moreover, shareholders will want an update on how the customers are adjusting their betting behavior as economies reopen. 

A person lays on their stomach, pumping their fist while smiling at their phone.

Image source: Getty Images.

Permission to expand  

DraftKings has the licenses to operate mobile sportsbooks in 12 states, serving 27% of the U.S. population. In a positive development for the industry, New York recently indicated it would allow mobile sports betting. The state could be a big boost for any company permitted to offer its services there.

Indeed, the state is projecting it will generate $482 million in tax revenue on gross gambling revenue of roughly $1 billion. New York is driving a tough bargain and asking for a much higher percentage of gambling revenue in taxes than other states. For instance, in neighboring New Jersey, gambling operators pay 13% tax on gross revenue. Still, CEO Jason Robins said DraftKings would be bidding for a license in the state, indicating he feels the returns could be enough to justify a costly share of revenue as tax. 

Those interested in DraftKings stock will want to hear if management has any updates on the bidding process. 

Moreover, it will be interesting to observe how its 1.5 million monthly unique players adjusted to economic reopenings. It could go either way, as sports stadiums brought back fans. Empty stadiums were making it a bit dull to watch games, and fans watching the game are more likely to make a wager on the outcome. 

Generally, the NFL season is the one associated with the most wagering activity. The recently completed NBA playoffs garnered an increase of 35% in viewership from the year before. If the increase in sports viewership extends from the NBA to the NFL, it could be a boon for DraftKings

What this could mean for investors 

Analysts expect the company to report revenue of $242 million and a loss per share of $0.52. The company is still investing in acquiring players and expanding to more states. DraftKings already raised revenue guidance for fiscal 2021. If it beats estimates and raises guidance again for 2021, you can expect the stock to respond to the upside. 

Looking out over the longer term, DraftKings is gaining market share in a new, rapidly expanding profitable field. Once initial spending on customer acquisition is completed, there is little cost associated with providing wagering services. 

Moreover, the appetite from leagues and teams to partner with mobile sportsbooks is increasing. They view the service as a complement that makes their product more fun to watch. And more viewers bring in more advertising dollars to teams and sports leagues. It's a win-win scenario if there ever was one. The losers here are black-market sportsbook operators who will lose out on customers to legitimate services. 

The stock is not cheap, trading at a forward price-to-sales ratio of more than 16. But for investors looking for a growth stock and willing to endure the regulatory risks that come with a gaming stock, DraftKings looks like a good option

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

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