DraftKings CEO upbeat on Q2 results given limited sports, sees IRS memo on excise tax liability "nonbinding"
WEAKER THAN EXPECTED Q2 EARNINGS: Shares of DraftKings were under pressure today after the company reported its Q2 results before the market open. Earnings per share came in at a loss (55c), below consensus calling for a loss of (19c), though revenue exceeded expectations at $70.9M ($75M on pro-forma basis) vs. consensus $66.4M. DraftKings saw the quarter as being hamstrung by the limited sports calendar due to the pandemic but offered positive commentary on its efforts to "work creatively" while looking to "engage fans" with new fantasy sports and betting products for NASCAR, golf, UFC, and European soccer events. DraftKings also initiated FY20 revenue guidance of $500M-$540M, which would imply growth of 22%-37% from FY19 levels and also top the current consensus view of $496.4M
CEO JASON ROBINS SEES SUSTAINABLE, DIFFERENTIATED ADVANTAGE: On the conference call accompanying the results, DraftKings CEO Jason Robins expanded on the company’s accomplishments during the quarter. Robins stated that revenue was improving sequentially each month as the reporting period progressed, with sales in the month of June rising 20% from year-ago levels. Late July to early August saw further acceleration with the return of MLB, NBA, and NHL action, Robins stated, adding that the early part of Q3 is seeing continued year-over-year revenue growth. The CEO was also upbeat on the trends in sport betting legalization, commenting on the company's launch of sports betting in Colorado and Illinois and also launching iGaming in Pennsylvania and West Virginia. Robins further contemplated that the expected completion of DraftKings technology migration "no later than September of 2021" would pave the way for a "sustainable and differentiated advantage" for DraftKings.
DRAFTKINGS DOWNPLAYS POTENTIAL TAX LIABILITY: Pressed upon the potential impact of Daily Fantasy Sports, or DFS, excise tax announced in a memo by the IRS on August 7th, which an analyst with Morgan Stanley estimated to be $20M-$30M for DraftKings on an annual basis during the Q/A portion of today’s call, CEO Robins disputed the assertion. The memo "has no force of law, is nonbinding and our view is deeply flawed in its analysis", Robins remarked, stating that DFS "is not wagering". The CEO further asserted that his belief has been affirmed within state legislatures and by courts "throughout the country", even though he acknowledged that this "ongoing process" of an IRS audit could take "some time to resolve" with no expectations of "what the ultimate resolution could look like".
PRICE ACTION: At the close, shares of DraftKings were down 5.9% at $33.91.
Keywords: DraftKings, DFS, Daily Fantasy Sports, IRS, excise tax