Customer Acquisition, Promo Costs Take Their Toll on DraftKings

Sports betting and iGaming operators are going through a massive acquisition phase in the US. They’re fighting for customers as each state comes online, and the best way to attract attention is through promotions and bonuses. However, they’re like a double-edged sword. While cutting into competitors’ ability to win a customer, promos also cut into the bottom line. DraftKings expects to report a year-on-year 36.6% increase in revenue for the fourth quarter of last year. At the same time, the company’s loss per share is expected to increase by 15%.

DraftKings Pays Price for Acquisition

DraftKings will give its final report on February 18, but the preliminary results have been released. Chief Financial Officer Jason Park stated that the company is seeing significant player acquisition and retention, but added that “investment in new state launches includes promotional expense, cost of revenue and external marketing” is also weighing down operations.

Wall Street analysts anticipate DraftKings will report a loss of $0.78 per share for the fourth quarter. This would be a higher loss than the $0.68 recorded in the same period a year earlier. Revenues are expected to rise by more than 36% to $439.5 million.

DraftKings gave away $10 million worth of promotions and bets to customers who used their app to wager on last weekend’s Super Bowl. That’s just a small part of the expense it has incurred as it launches in each new state.

There are investor concerns over how DraftKings will mitigate its expenses. However, this Friday’s announcement could increase the stock price depending upon demand data from customers or more US state partnerships.

Greater Stability Coming

With the NFL regular season coming to an end in January ahead of the playoffs and Super Bowl, it is possible that demand has risen. DraftKings has launched mobile betting operations in Louisiana and Oregon, as well as New York, last month, as more states legalize betting. According to The Motley Fool, the New York market could be worth $1 billion annually in gross gaming revenue.

DraftKings shares have seen a 63% drop in value over the past twelve months due to cost concerns. In addition, DraftKings’s inability to purchase Entain has also impacted its share price. Over the same period, Entain’s share price has increased 23%. Rival Flutter Entertainment, in comparison, has fallen 22%.

DraftKings reported revenues of $213 million in its third quarter, an increase of 60%. However, this was below the forecast of $231.5 million. The company claimed it could have made $40 million more if it weren’t for negative NFL betting results.

Most industry analysts predict that revenue from legal US sports gambling and iGaming revenues will rise from approximately $1.5 billion annually in 2019 to $20.6 billion by 2025, as more states legalize and increase their per capita spending. DraftKings, and others, will have to continue to offer promotions to stay competitive; however, a larger pool of stable players will lead to better cash flow.