What happened
Shares of DraftKings (DKNG 2.90%) climbed on Friday after the sports entertainment and gaming company reported its first-quarter financial results and raised its full-year guidance. As of 1:40 p.m. ET, DraftKings stock was up 15.8%.
So what
Usually, DraftKings performs better during the National Football League season, which may have lowered expectations for Q1 considering that the season ended midway through the quarter. However, the company generated revenue of $770 million in Q1, which was an eye-popping 84% year-over-year increase. This blew past analysts' consensus estimate.
NASDAQ: DKNG
Key Data Points
DraftKings benefited in Q1 from its expansions into Massachusetts and Ohio. But in my view, there's one pair of stats in the report that all investors should be paying attention to. According to management, the number of new users added grew by 57% year over year during the quarter. However, its customer acquisition cost dropped by 27%. That's a hugely powerful trend if it continues, and rightly got investors fired up Friday.
Now what
Back when it reported its fourth-quarter 2022 results, DraftKings raised its revenue guidance for 2023 to a range of $2.85 billion to $3.05 billion. However, in light of its outperformance in Q1, management boosted its guidance yet again to a range of $3.135 billion to $3.235 billion. It's also worth noting the tighter guidance range, which typically denotes greater certainty from management regarding its forecast.
DraftKings indeed appears to have some tailwinds in place this year. As noted, it recently expanded into new states, and more states are considering allowing companies like DraftKings to do business within their borders. That could keep driving strong top-line growth.
However, while top-line growth is encouraging, investors should be cognizant of its ongoing bottom-line losses. Perhaps the easiest profitability hurdle for a company to jump over is adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), because it factors out so many expenses. Even on this metric, DraftKings is far from being in the black. It expects to report an adjusted EBITDA loss of $290 million to $340 million for 2023.
That's far better than its adjusted EBITDA loss of $722 million in 2022. But it's still a loss. That said, if DraftKings can keep growing its user base while reducing what it costs the company to acquire each new user, perhaps it can keep improving profitability as it grows.
