DraftKings Delivers Sweet Q2 Surprise, But Stock Drops 9%: Retail Couldn’t Disagree More

DraftKings Inc (DKNG) is doing everything right — its second-quarter earnings topped analyst estimates and the company announced a $1 billion inaugural share repurchase program. If that wasn’t enough, it also revealed plans to implement a gaming tax surcharge in high tax states that have multiple mobile sports betting operators on January 1, 2025 to boost its earnings. But Wall Street and retail investors are at different ends of the spectrum on the stock.

The four states reportedly include Illinois, New York, Pennsylvania and Vermont. The management clarified in its letter to the shareholders that the surcharge will be fairly nominal to the customer. “In Illinois, for example, it will amount to a low to mid-single digit percentage of the net winnings a customer would previously have received,” the management said.

However, DraftKings cutting its full-year operating income guidance has not been received well by the broader market. The company said it now expects fiscal year 2024 adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) of between $340 million and $420 million versus its prior guidance of $460 million - $540 million.

Nevertheless, DraftKings did raise its fiscal year 2024 revenue guidance to a range of $5.05 billion to $5.25 billion from the range of $4.80 billion to $5.00 billion.

Shares of the firm plunged over 9% on Friday. But retail investors ratcheted up their sentiment on the stock to a one-year high, pushing the sentiment meter into the ‘extremely bullish’ territory (94/100), supported by huge message volumes.

For the second quarter, revenue rose 26% to $1.10 billion, mostly in line with analyst estimates, driven primarily by continued healthy customer engagement, efficient acquisition of new customers, expansion of its Sportsbook product offering into new jurisdictions, higher structural Sportsbook hold percentage and the impact of buying Jackpocket Inc.

DraftKings also delivered a surprise profit of $0.10 per share (Wall Street expected a loss of $0.01 per share), and reiterated its fiscal year 2025 adjusted EBITDA to be in the range of $900 million to $1 billion.

Stocktwits watchers are optimistic about the firm’s plans to increase its profitability. One user named ‘EsotericWizard’ expressed optimism on the introduction of the tax and indicated that the step seems to be in the right direction.

Photo Courtesy: World Poker Tour on Flickr