DraftKings (NASDAQ: DKNG) released its earnings and revenue result for Q4 2021 on Friday, February 18, 2022, posting YoY quarterly growth of 47% in revenue, but shares still lost after the company predicated wider than anticipated loss for 2022.
What to look for: The company indicated that it could attain profitability through one financial metric in late next year, but a wider than anticipated loss projection for 2022 overshadowed this. The company faces stiff inline sports gambling competition. In addition, the expansion to new markets and the launch of offerings in these new markets contributed to widening losses.
Earnings: Stockearning’s Estimated EPS was a loss of $0.81 per share, but the company topped that with an actual EPS loss of $0.35 per share. In the third quarter, the company reported actual EPS of $1.35, missing estimates by 21.62%. For the past 12 quarters, historical EPS indicates that the company has missed estimates in 7 quarters (100%) and has never topped estimates. DraftKings expects an adjusted EBITDA loss of between $825 million and $925 million in 2022.
Revenue: In the fourth quarter, the company had revenue of $473 million, 47% YoY growth, topping analysts' consensus estimates of $439 million. The company exceeded the revenue forecast it had issued in the third quarter, in which it expected revenue to grow by 8%. For full-year 2022, the company now expects revenue to be between $1.85 billion and $2 billion, in line with consensus predictions of $1.9 billion.
Stock Movement: DKNG shares have lost 50.6% since the company released its third-quarter earnings. Interestingly, the company's shares have been UP 4 times out of the past seven quarters. So, the historical price reaction suggests a 57% probability of the share price going UP following the fiscal Q4 2021 earnings release. According to the Stockearning algorithm, the predicted volatility on the first day is +/-6%, while the predicted volatility on the seventh day is +/-11%.
What analysts are saying: Benchmark analyst Mike Hickey slashed his price target on DKNG from $50 to $26 but kept a Buy rating in the shares after the Q4 earnings release. While Hickey stated that the DraftKings provided better-than-anticipated results, beating consensus revenue and earnings estimates, he also stated that it announced an adjusted EBITDA estimate that fell short of expectations. DraftKings showed vision into future profitability, according to the analyst, but short-term adjusted EBITDA loss overwhelmed the firm's revenue growth.
Roth Capital analyst Edward Engel was cautious on DKNG ahead of the earnings results and considered the stock’s recent bounce as an appealing shorting chance. While he estimates DraftKings' Q4 GGR climbed 70% year over year, the midpoint of the company's forecast suggests net revenue increased 105% sequentially. According to guidance/street estimates, the ratio of NGR to GGR will return to levels seen in 1H 2021, Engel said. However, according to state-reported NGR data, promos have stayed high since September, bolstering his confidence in a Q4 miss. The analyst rates the stock as a Sell with a $23 price target.
Oppenheimer analyst Jed Kelly slashed his price target on the stock from $70 to $35 but maintained a Buy rating on the shares. According to the analyst, additional state debuts, Oregon exclusivity, quick OSB acceptance, and efficient cross-selling into NFT platforms are expected to boost revenue in 2022. The analyst points out that OSB is still in the early stages of its growth cycle, with management preferring long-term share growth over short-term earnings to boost the short-term share price.
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