DraftKings (DKNG 1.11%) reported fiscal 2022 first-quarter earnings before the markets opened on Friday, May 6. The online gambling company raised its targets for the rest of the year after experiencing better-than-expected results in Q1.
DraftKings offers mobile sports betting, online gambling, and daily fantasy sports across the U.S. and will soon enter the Canadian market. The nature of its service means it requires approval in each jurisdiction before it can start accepting customers from the region.
Let's look closer at the Q1 figures and see what has DraftKings optimistic for the rest of 2022.
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DraftKings raises expectations for 2022
In its first quarter, which ended March 31, DraftKings generated revenue of $417 million. That was up by 34% from the $312 million it earned in the prior-year period. Analysts on Wall Street expected DraftKings to report revenue of $414 million in Q1. The better-than-expected sales growth satisfied DraftKings management.
DKNG Revenue (Quarterly) data by YCharts
Jason Park, DraftKings' chief financial officer, said, "We are pleased with our strong revenue and Adjusted EBITDA [earnings before interest, taxes, depreciation, and amortization] performance in the first quarter, driven by healthy underlying customer behavior and our ability to capture efficiencies. Therefore, we are increasing the midpoint of our fiscal year 2022 revenue guidance by $50 million and improving the midpoint of our fiscal year 2022 Adjusted EBITDA guidance by $75 million."
As mentioned earlier, DraftKings requires licenses to operate in each state. Thus far, it is live with mobile sports betting in 17 states and online gambling in five. It recently launched in the state of New York, a market with a massive population that could prove incredibly lucrative for DraftKings in the long term. Speaking of large states, DraftKings is optimistic that it can eventually enter the market in California. It is funding a ballot initiative in the state, which has received 1.6 million signatures, to place mobile sports betting on the November 2022 ballot.
NASDAQ: DKNG
Key Data Points
Meanwhile, three regions that have already legalized sports betting and where DraftKings could potentially start offering its services are Maryland, Puerto Rico, and Ohio. Collectively, they represent 7% of the U.S. population. Further, DraftKings has already gotten approval and will launch in Ontario, Canada, in the second quarter. With all this momentum, management is justifiably optimistic for the rest of 2022.
The market was not impressed
DraftKings stock is down 27% over the previous five days. Of course, other factors are at play, including the market's increasing dislike of unprofitable growth stocks. Overall, DraftKings is down 84% off its highs. Admittedly, the company's losses on the bottom line are troubling. In its most recent quarter, its net loss increased to $468 million, up from $346 million in the prior-year period.
DKNG Net Income (Quarterly) data by YCharts
DraftKings invests aggressively in customer acquisition each time it enters a new state market, and that spending has led to massive losses. There is no telling whether the customers it acquires in the early stages of legalization in a state will stick with DraftKings or move to a competitor that offers a promotional bonus. Therefore, DraftKings stock may find difficulty turning upward regardless of impressive growth.
