DraftKings Positive Forward Outlook Despite Missing Earnings Expectations

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The Earnings

DraftKings’ 4th quarter earnings call was held this morning, February 26th, and provided somewhat negative but mostly positive news for investors. The first thing that was talked about was the -$0.68 earnings the company brought in during quarter four of 2020.

The expectations set by many experts were -$0.47, meaning that the gambling and daily fantasy giants missed expectations by over 20 cents. However, more worrisome for many would be the fact that Q4 featured a ton of wagering and fantasy games with the NFL season. If there was any quarter to expect big earnings, it was Q4.

At the same time, digging deeper, you can see that DraftKings is in a highly competitive new market with several new states legalizing sports betting. DraftKings is working on market acquisition at the moment in these states, so it may not be nearly as profitable as it will be even just a year out.

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Forward Guidance: Canada

A lot of the forward guidance provided around DraftKings centered around the expectation that Canada seems primed to legalize single-game betting in the country. This would allow DraftKings to open its online sportsbook or at least apply for licensing. It seems like Canada may end up with a similar system as the United States, where each province will have its own regulations.

Regardless, Canada holds over 37 million people; if the entire country were to legalize, then it would be the largest single market that DraftKings has entered. Many experts see the California market as a possible market that can peek at $4-5 billion wagered a month, with a similar population. Needless to say, Canada and its provinces will be massive targets for DraftKings’ sports betting expansions.

Market Reaction

As of writing this at 10:45 am PT and 1:45 pm ET, DraftKings is currently up 6.05% at $61.33. This is a $3.55 increase on the day, just after missing expectations for earnings. Obviously, the investors loved what they heard regarding forward guidance and were not too worried about the earnings.

DraftKings has only been publicly traded since April of 2020. The starting price was around $40, and since then, the company has grown at a steady rate in the stock market. Now reaching $60, DraftKings has seen a 50+ percentage increase in value in less than a year.

What has been driving this increase is the legalization of sports betting. Between the several states that have gone live, the ones who plan on launching, and the states with bills in place, it is possible that by 2022 over 50% of Americans have access to online and mobile sports wagering.

For reference, New Jersey wagered over $6 billion last year. That is one state and a state with not even 10 million people, wagering that much during a pandemic with limited sports to bet on.

When you add Canada on top of this list, and of course, take into consideration the good flow of cash the company gets from being the face of daily fantasy sports, it is clear why investors are excited. It seems that online betting is the future, and DraftKings is clearly a massive presence in this online sports betting space.

Matthew is a UC Berkeley economic and philosophy graduate. He has played DFS, Football pools, and survival leagues for most of his adult life. Matthew brings to the table great strategies for both your GPP and Cash plays as well as a winning track record with his picks of the week.

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