DraftKings Inc. (NASDAQ: DKNG) shows sports betting is not the money machine people think it is.
To explain, DraftKings (DKNG) reported a quarterly operating loss of -$546.52 million on 30 September 2021. That quarterly operating loss grew from -$348.36 million on 30 September 2020. In contrast, DraftKings’ quarterly gross profit rose from $36.27 million on 30 September 2020 to $42.07 million on 30 September 2021.
Hence, DraftKings reported an operating loss of over half a billion dollars on 30 September 2021. Conversely, DraftKings is experiencing enormous revenue growth. For instance, Stockrow estimates Draftkings revenues grew by 60.21% in the quarter ending on 30 September 2021.
Incredibly, DraftKings reported a revenue growth rate of 319.57% in the quarter ending on 30 June 2021. However, DraftKings’ quarterly revenues rose from $132.84 million on 30 September 2020 to $212.82 million a year later.
DraftKings loses money
Thus, DraftKings (NASDAQ: DKNG) is experiencing incredible growth while losing more and more money.
For example DraftKings reported a negative quarterly operating cash flow of -$70.11 million on 30 September 2021. The quarterly operating cash fell from $19.12 million on 30 September 2020.
DraftKings can generate enormous amounts of cash. It reported a quarterly ending cash flow of $2.818 billion on 31 March 2021. The quarterly ending cash flow fell to -$85.72 million on 30 September 2021.
Unfortunately, DraftKings only got that money by borrowing. DraftKings reported a quarterly financing cash flow of $1.129 billion on 31 March 2021. Yet the quarterly financing cash flow fell to $2.22 million on 30 September 2021.
In 2021, DraftKings’ Total Debt grew from $82 million on 31 December 2020 to $1.322 billion on 30 September 2021. Conversely, DraftKings’ cash and short-term investments grew from $1.817 billion to $2.395 billion in the same period.
DraftKings borrows money to survive
I think the financial numbers show that DraftKings (DKNG) needs to borrow money to survive. I also think the numbers show DraftKings is not making money from the expansion of online sports betting in the United States.
Some form of online sports betting is now legal in 19 states, Action Network estimates. In detail, 11 states offer full mobile betting, two states offer full mobile betting with in-person sign up , and six states offer limited mobile (online) betting options.
I think Stockrow’s data shows DraftKings is not profiting from the expansion of online sports betting. Instead, DraftKings is spending money now hoping to make money in the future.
DraftKings loses money
One reason DraftKings (DKNG) loses money is the amount of of money it pays out. DraftKings admits to having paid out $7 billion to bettors. Another reason DraftKings is losing money is that it pays out bonuses of up to $1,000 to attract new bettors.
The DraftKings Online Sports book takes bets in 14 states. However, DraftKings does not operate in America’s largest states. The only large population states DraftKings operates in are Illinois and Pennsylvania. Notably, DraftKings does not operate in the high population states of California, Texas, Florida, and New York.
Currently, DraftKings operates an online casino with over 300 games, daily fantasy sports contests, and an online sports book. Skeptics will wonder if DraftKings could ever make money.
What Value Does DraftKings Offer?
DraftKings (NASDAQ: DKNG) is adding value. For instance, the total assets grew from $3.439 billion on 30 September 2020 to $4.259 billion on 30 September 2021.
Yet, DraftKings’ stock value is falling. Mr. Market paid $48.03 for DraftKings on 23 November 2020 and $36.04 for DraftKings on 24 November 2021. Hence, Mr. Market has noticed DraftKings’ losses.
I think DraftKings is a terrible stock investors need to avoid. The company loses money and share value is falling while the stock pays no dividends.
I believe DraftKings shows online sports betting may not be a viable business because of the losses. I think investors need to avoid sports books because of DraftKings’ losses.
Originally published at https://marketmadhouse.com on November 26, 2021.
