Stock Story -
Fantasy sports and betting company DraftKings (NASDAQ:DKNG) fell short of analysts' expectations in Q2 CY2024, with revenue up 26.2% year on year to $1.10 billion. On the other hand, the company's full-year revenue guidance of $5.15 billion at the midpoint came in 3.6% above analysts' estimates. It made a non-GAAP profit of $0.22 per share, improving from its loss of $0.17 per share in the same quarter last year.
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DraftKings (DKNG) Q2 CY2024 Highlights:
- Revenue: $1.10 billion vs analyst estimates of $1.12 billion (small miss)
- Adjusted EBITDA: $128.0 million vs analyst estimates of $129.3 million (1.0% miss)
- EPS (non-GAAP): $0.22 vs analyst estimates of $0.19 (14.9% beat)
- The company lifted its revenue guidance for the full year from $4.9 billion to $5.15 billion at the midpoint, a 5.1% increase
- The company lowered its adjusted EBITDA guidance for the full year from $500 million to $380 million at the midpoint, a 24% decrease
- 2025 adjusted EBITDA guidance $950 million at the midpoint, below expectations of $991 million
- Gross Margin (GAAP): 39.9%, down from 41.7% in the same quarter last year
- Free Cash Flow of $26.97 million is up from -$73.42 million in the previous quarter
- Market Capitalization: $17.91 billion
Getting its start in daily fantasy sports, DraftKings (NASDAQ:DKNG) is a digital sports entertainment and gaming company.
Gaming SolutionsGaming solution companies operate in a dynamic and evolving market, and the digital transformation of the gaming industry presents significant opportunities for innovation and growth, whether it be immersive slot machine terminals or mobile sports betting. However, the gaming solution industry is not without its challenges. Regulatory compliance is a crucial consideration as companies must navigate a complex and often fragmented regulatory landscape across different jurisdictions. Changes in regulations can impact product offerings, operational practices, and market access, requiring companies to maintain flexibility and adaptability in their business strategies. Additionally, the competitive nature of the industry necessitates continuous investment in research and development to stay ahead of competitors and meet evolving consumer demands.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Thankfully, DraftKings's 69% annualized revenue growth over the last five years was incredible. This shows it expanded quickly, a useful starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. DraftKings's annualized revenue growth of 65.5% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong.
This quarter, DraftKings generated an excellent 26.2% year-on-year revenue growth rate, but its $1.10 billion of revenue fell short of Wall Street's high expectations. Looking ahead, Wall Street expects sales to grow 26.7% over the next 12 months.
Cash Is KingIf you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
While DraftKings posted positive free cash flow this quarter, the broader story hasn't been so clean. Over the last two years, DraftKings's demanding reinvestments to stay relevant have drained its resources. Its free cash flow margin was among the worst in the consumer discretionary sector, averaging negative 2.5%.
DraftKings's free cash flow clocked in at $26.97 million in Q2, equivalent to a 2.4% margin. This quarter's result was nice as its cash flow turned positive after being negative in the same quarter last year, but we wouldn't read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.
Key Takeaways from DraftKings's Q2 Results We were impressed by DraftKings's optimistic full-year revenue guidance, which beat analysts' expectations. On the other hand, adjusted EBITDA missed in the quarter and full year adjusted EBITDA guidance was lowered meaningfully. The company gave initial 2025 adjusted EBITDA guidance, which also missed. Zooming out, we think this was a mixed but overall mediocre quarter. The stock remained flat at $35.30 immediately following the results.
