DraftKings' Q3 Miss: A Setback or Opportunity for Growth?

DraftKings Inc. (DKNG) shares tumbled in late trading on Thursday, November 9, 2024, after the sports betting company reported a third-quarter revenue miss and lowered its 2024 revenue outlook. The company's stock fell more than 5% in after-hours trading, positioning it to pull back from a test of resistance at its 200-day moving average. This article delves into the reasons behind DraftKings' Q3 miss, the impact on its 2024 revenue guidance, and the potential implications for the company's future growth.

DraftKings reported third-quarter revenue of $1.095 billion, up 39% year-over-year, but missed a Street consensus estimate of $1.112 billion. The company attributed the revenue growth to strong customer engagement, the acquisition of new customers, the launch in new territories, and the impact of the acquisition of Jackpocket, which closed in May. However, the company's average revenue per Monthly Unique Payer (MUP) decreased by 10% year-over-year to $103, primarily due to lower ARPMUP for Jackpocket customers compared to existing customers.

The Jackpocket acquisition contributed to DraftKings' overall revenue growth but had a mixed impact on the company's financials. While the acquisition drove a 55% year-over-year increase in MUPs, the lower ARPMUP for Jackpocket customers resulted in a 10% decrease in ARPMUP. Excluding the impact of the acquisition, ARPMUP would have increased by approximately 8% year-over-year, indicating a positive trend in customer retention and engagement.
DraftKings lowered its fiscal year 2024 revenue guidance from a range of $5.05 billion to $5.25 billion to a new range of $4.85 billion to $4.95 billion due to customer-friendly sport outcomes in the fourth quarter. The company now expects fiscal year 2024 Adjusted EBITDA of between $240 million and $280 million, down from its previous guidance of between $340 million and $420 million. Despite the downward revision, DraftKings introduced its 2025 revenue outlook of $6.2 billion to $6.6 billion, representing 31% growth at the midpoint of the updated 2024 range.
The revision in 2024 revenue guidance affects DraftKings' projected growth rate compared to its previous estimates. The new guidance represents a year-over-year growth rate of 32% to 35%, compared to the previous estimate of 35% to 38%. Despite the downward revision, DraftKings' projected growth rate remains robust, indicating the company's continued expansion in the sports betting and iGaming market.
The factors contributing to DraftKings' decision to lower its 2024 revenue guidance highlight the importance of customer-friendly sport outcomes in the fourth quarter. The company's revised guidance reflects the impact of several weeks of favorable outcomes for bettors during the NFL season. Despite the lower guidance, DraftKings remains confident in its long-term growth prospects, as it continues to expand its sportsbook and iGaming offerings into new jurisdictions and enhance its top-ranked sportsbook app with additional live betting features and exciting new NBA markets.
In conclusion, DraftKings' Q3 miss and revised 2024 revenue guidance signal a potential slowdown in growth. However, the company's established presence in 25 states and Washington D.C., representing 49% of the U.S. population, and its expansion into new jurisdictions, such as Missouri and Puerto Rico, could help mitigate the impact of the revenue guidance reduction. Additionally, DraftKings' focus on enhancing its top-ranked sportsbook app with additional live betting features and new NBA markets may help drive sustainable revenue growth and profitability in 2025 and beyond. As an experienced investor, it is essential to monitor DraftKings' performance and assess the company's strategic initiatives to determine if it remains a strong value investment.