Mobile gaming company DraftKings (DKNG 1.63%) reported fiscal third-quarter results in early November. The announcement revealed a continued expansion into new territories for its online products.
The company is gaining momentum following a wave of legalization by U.S. states for mobile sports betting and iGaming. In its third quarter, DraftKings added Arizona and Wyoming to the list of states where it offers mobile sports betting, and Connecticut to its smaller list of states where it offers iGaming.
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DraftKings is getting better at launching in new markets
After adding Arizona and Wyoming, DraftKings is live in 15 states for mobile sports betting. Collectively, these states encompass 29% of the population of the U.S. The figure shows both the progress DraftKings has made up until now and the potential that remains. There is a far more significant part of the U.S. where it's not providing sports betting.
Interestingly, DraftKings is getting better at introducing its service to new markets. Its launch in Arizona took DraftKings just 17 days to acquire the first 100,000 new customers. That's compared to the 170 days it took to reach the same milestone when it launched in New Jersey. The company attributed its success in Arizona to its data-driven, disciplined marketing approach for acquiring customers efficiently.
DraftKings may make further progress in this regard over the next few quarters, as management pointed out on the earnings release discussing lucrative near-term prospects for expansion:
Three of the states where DraftKings has the potential opportunity to participate via a market access agreement or direct license -- New York, Maryland and Louisiana -- have authorized mobile sports betting this year. These three states represent 9% of the U.S. population and bring the percentage of the population with legalized mobile sports betting to 39%.
Moreover, DraftKings successfully launched its iGaming product in Connecticut in Q3. The company is not as far along in its expansion of iGaming as it is with the mobile sportsbook. Indeed, with this latest launch, DraftKings is now live in five states with iGaming, representing 11% of the U.S. population, again revealing the potential for further expansion if states continue legalizing the activity.
The market is not impressed with DraftKings this year
DraftKings stock is down roughly 5% year to date in 2021. The development of COVID-19 vaccines and the reopening of economies is undoubtedly not good for its business. Folks looking for a little bit of gaming action are now more comfortable driving to their local land-based casino than when vaccines were more scarce at the beginning of the year.
Perhaps equally as important, some states require in-person customer registration as part of the legislation to legalize mobile sports betting. A curious requirement, to be sure. However, some of those restrictions were put on pause earlier in the year because of COVID-19. Of course, it's easier for DraftKings to sign up new customers if it can convert them online instead of in-person, so the end to those favorable terms is also hurting the stock to a degree. Nevertheless, DraftKings continues making progress in its expansion across the U.S.
Over the years, new markets have helped DraftKings triple revenue from $192 million in fiscal 2017 to $615 million in 2020. However, profits have yet to materialize as the company invests in those market launches.
