DraftKings Gets Fewer Bettors Than Expected, Despite Bonuses

Can’t watch this year’s Super Bowl without being bombarded advertising for online sports betting servicesas the industry boils down to a wave of countries legalizing their businesses to attract new customers.

But Wall Street has lost confidence that one of the giants of the field, DraftKings, quarterly results report on Friday, will soon be profitable. The company’s shares have fallen nearly 72% over the past year, including a drop of more than 21% on Friday.

DraftKings lost $326 million in Q4, and had fewer users than expected. The loss came despite good revenue growth in the last three months of 2021, with revenue up 47% to $473 million.

Super Bowl promotional Blitz is expected to further promote legalized sports betting. However, DraftKings told investors to expect an additional loss of nearly $1 billion from operations this year.

The problem is the cost to gain customers. Investors are not worried about the potential size of the market; Analysts at MoffettNathanson predict online sports betting will reach nearly $11 billion in revenue by 2025, up from $3.6 billion. But consider this: DraftKings has attracted new customers with $140 million in promotions and offers, most of which goes straight to their accounts, MoffettNathanson estimates. On top of that, it spent nearly $300 million on overall sales and marketing (for things like the $6.5 million 30-second Super Bowl commercial).

Some analysts worry that those promotional costs may not work if customers fail to demonstrate loyalty. Companies also have to compete with High taxes that states have imposed on online betting sites; New York State, for example, has a tax rate of 51%. That makes it harder for betting businesses to make a profit.

Robert Fishman of MoffettNathanson calculates that DraftKings won’t have positive cash flow until 2025 and won’t truly turn a profit until 2028.

“We thought there would be less advertising in New York because of the tax rate, but companies have loosened up,” said Barry Jonas, an analyst at Truist, told DealBook newsletter. “Investors are really questioning the long-term profitability of the game” of these companies.

That could mean DraftKings and its rivals will be forced to focus on retaining customers and cutting costs, rather than adding new ones – and potentially their valuations will fall even further. when their growth slows down.

“There is no doubt that industry stakeholders will need to shift focus,” said Lloyd Danzig, founder of Sharp Alpha Advisors, a gaming investment and consulting firm.

https://www.nytimes.com/2022/02/18/business/draftkings-earnings-4q-2021.html DraftKings Gets Fewer Bettors Than Expected, Despite Bonuses

Fry Electronics Team

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