DraftKings (DKNG -1.16%) is scheduled to report fourth-quarter 2021 earnings on Feb. 18. The company is growing revenue rapidly as it expands into new states.
The daily fantasy sports, mobile sportsbook, and iGaming operator is capitalizing on an increasing appetite from state legislatures to legalize mobile gaming activities. The fast-paced growth creates a lot of moving parts for DraftKings. Here's what will be essential to watch for in the upcoming Q4 report.
DraftKings launches in lucrative new market
Interestingly, when DraftKings last reported earnings on Nov. 5, it offered mobile sports betting in 15 states and iGaming in five states. Since that date, DraftKings has launched in two additional states for mobile sports betting, Louisiana and New York. The latter is the potential blockbuster, worth an estimated $1 billion in gross gaming revenue annually.
Note that DraftKings launched in New York on Jan. 8 and will announce earnings on Feb. 18. That's roughly one month's worth of data the company has seen since launching in the new state. Therefore, management will be limited in the depth and detail of information it can deliver to investors from this potentially lucrative market. Still, investors will want to pay close attention to whatever management does reveal.
The most recent state launches before New York were in Arizona and Wyoming. DraftKings noted that customer acquisition in those two markets is trending far better than previous launches. In Arizona specifically, it emphasized that customer acquisition was 3.3 times better than in other states.
Management attributed the improving results to its progress on the learning curve after launching in so many new markets. It also credited rising consumer awareness of online sports betting. If DraftKings has achieved similar success thus far in New York, it would be a bullish sign, to be sure.
Meanwhile, those interested in DraftKings will also want to observe how its existing business performed during the crucial football season. In the nine months ended Sept. 30, it has earned $822 million in revenue, and management is guiding for revenue of $1.26 billion for all of 2021. Doing a bit of elementary math, it follows that management expects to deliver revenue of $438 million in Q4.
That said, revenue growth has not been the primary challenge for DraftKings in 2021. Instead, the focus has been on the high degree of costs to achieve that growth. In the nine months ended Sept. 30, DraftKings has lost $1.2 billion on the bottom line.
What this could mean for DraftKings investors
Analysts on Wall Street expect DraftKings to report revenue of $444.31 million and a loss per share of $0.78. If it meets those projections, it would be an increase of 37.90% and a decrease of 14.70%, respectively, from the same period a year ago.
The market appears to be most focused on losses to DraftKings' bottom line. In the past year, the stock is down nearly 60%. Management may need to shift attention to a more sustainable growth path. Otherwise, the stock may continue to suffer despite impressive top-line growth.