Stock-based compensation lands at 25% of the quarterly revenue

DraftKings Inc. (Nasdaq: DKNG) released this morning its financial results for Q3 2022, highlighting quarterly revenue of US$501.9 million, beating the consensus estimates of US$436 million. This is also an increase from Q3 2021’s US$212.8 million.

“DraftKings had a very strong third quarter. Our team continued to drive top-line growth through highly effective customer engagement and compelling product and technology enhancements while remaining focused on our path to profitability,” said CEO Jason Robins.

Further down the financials, the company incurred operating expenses larger than its quarterly revenue, leading to an operating loss of US$455.0 million compared to the US$546.5 million loss last year.

The firm’s net loss ended at US$450.5 million for the quarter, up from last year’s net loss of US$545.0 million. This quarterly net loss translates to US$1.00 loss per share, failing to beat the estimated US$0.92 loss per share.

Calibrating for financial items–including US$126.0 million (or 25% of the revenue) stock-based compensation, adjusted EBITDA for the quarter came in at a loss of US$264.2 million, up from a loss of US$313.6 million last year.

Following the earnings release, the firm’s shares are trending downwards, losing as much as 25% on the day as of this writing.

Guidance: Narrowed for 2022, Adjusted EBITDA loss for 2023

“Our results in the third quarter significantly exceeded the expectations that we provided on our second quarter earnings conference call,” said CFO Jason Park.

This “strong third quarter” performance led the firm to adjust its full-year 2022 guidance: revenue is now expected to land somewhere between US$2.16 billion – US$2.19 billion from the previously announced range of US$2.08 billion – US$2.18 billion last quarter.

The firm is also narrowing–the firm called it “improving”–its adjusted EBITDA guidance for the year, projecting the figure to notch a loss of US$780 million – US$800 million from what it relayed last quarter at US$765 million – US$835 million.

“We are increasing the midpoint of our fiscal year 2022 revenue guidance by $45 million and improving the midpoint of our fiscal year 2022 Adjusted EBITDA guidance by $10 million, which is a meaningful improvement given our prior fiscal year 2022 Adjusted EBITDA guidance did not include our launch in Kansas on September 1, 2022, or fourth quarter investments ahead of our expected launches in Maryland and Ohio, pending licensure and regulatory approvals,” Park noted.

Year-to-date, the firm has notched US$1.14 billion net loss and US$671.9 million adjusted EBITDA loss against a US$1.39 billion revenue. The biggest slide of the calibration to adjusted EBITDA comes from stock-based compensation, which currently runs at US$448.6 million or 32% of the revenue for the first nine months of 2022.

For 2023, the gaming company is looking at annual revenue to dramatically increase, landing between US$2.8 billion – US$3.0 billion or a 33% increase over 2022’s revenue guidance midpoint.

Adjusted EBITDA for next year is still expected at a loss, ranging at negative US$475 million – US$575 million.

The company added that these 2023 guidances “reflects [its] continued balance between driving attractive revenue growth and meaningfully improving [its] Adjusted EBITDA.”

“We continue to be confident that we will achieve positive Adjusted EBITDA in the fourth quarter of 2023 based on the visibility we have into expected state launches,” Robins added.

The firm has previously announced in May that the first positive adjusted EBITDA quarter is expected in Q4 2023. Part of the strategy to achieve this is synergizing the acquired Golden Nugget Online Gaming (GNOG), with which the firm operates the brand in three states.

Over the course of the quarter, three putative class action suits have been filed against Golden Nugget and DraftKings by former minority stakeholders. The lawsuits allege that GNOG and former controlling stockholder Tilman Fertita “breached their fiduciary duties” related to the acquisition deal. The company said it “intends to vigorously defend against these claims.”

According to various media reports, the sports betting company is close to announcing a partnership with sports broadcasting giant ESPN, a unit of The Walt Disney Company (NYSE: DIS). 

DraftKings last traded at US$11.78 on the Nasdaq.

Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.