Good morning. In today’s edition:

• DraftKings’ share price benefits after well-received earnings.

• Pennsylvania’s January data shows FanDuel’s NGR dominance.

• EKG suggests DraftKings was the biggest spender on Super Bowl digital ads.

• Our startup focus is profitable bet-finder website Betscope.

Driving that train.

DraftKings’ bounce

A well-received earnings statement helped push DraftKings’ share price back over $20 for the first time since August last year.

Bouncebackability: DraftKings was rewarded with a 15%-plus share price rise on the day after telling investors it was making progress with its drive towards profitability. The shares have risen over 85% in the year to date. 

• The company reiterated on Friday its aim of hitting EBITDA profitability in 2024, with CEO Jason Robins saying a “lightbulb had gone off” about the efficiency drive.

• JMP’s analysts said DraftKings had produced “one of its most impressive quarters”, after revenue climbed 81% to $855m. Macquarie called it a “milestone quarter”.

• Macquarie added that Q4 also marked a “turning point” for DraftKings’ hold rate, with its single-game parlay product engendering customer engagement.

• Deutsche Bank noted DraftKings’ shares were up 85% YTD. However, the team at CBRE suggested the market had “priced in the upside in a hurry”.

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Risky business 

Aging gracefully: According to CBRE, the upside for DraftKings comes from the evidence of organic growth coming from earlier vintage states in combination with declining expenses, which will be “key to long-term profitability”.

• The Deutsche Bank team noted the narrative for the sector and its bellwether stock includes improving profitability, a de-risked outlook and an easing of promotional spend.

• But an element of the boost comes from the promotion of potential iCasino efforts “despite most having little chance of success”. 

• They added that the greatest risk to DraftKings’ share price would come from a deterioration in the broader market.

Flatter to deceive: A note of skepticism was introduced by Regulus who pointed out that Q4 was the “most flattering quarter” for US sportsbooks, with the concentration of activity providing “welcome operating leverage to stubbornly fixed costs”.

• They noted that expensed costs (cost of revenues, marketing, admin, product and tech) represented a “hopeful” 106% of total revenue vs. an “alarming two-year average” of 140%.

• But this was achieved in a good quarter for consumer demand; the question for this year is whether these volumes can be sustained in the quieter quarters to solve the “crippling” cost of revenue line.

• “Cutting staff only provides limited relief when ~80% of the cost base is external,” the team added.

Datalines – Pennsylvania

January shows FanDuel’s NGR dominance with 69% share.

Domineering: After enjoying a 41% YoY increase, FanDuel saw its share of sports-betting NGR rise to 68.6%, leaving the competition fighting for scraps. This came from a 40.6% share of handle and after a promo spend of $8.8m or 24.5% of its GGR of $35.7m. 

• Further good news came from its performance in iCasino where it saw a 45% YoY rise, with GGR of $29.7m or 22.3%. 

• This had Deutsche Bank declaring FanDuel the market leader; however, Wells Fargo estimated that BetMGM remained on top with an estimated 22.8%.

Shape of it all: Sports-betting NGR total was up 22% to $39.2m and iCasino totalled $133.1m, up 23%, with the combined $172.3m up 23%. FanDuel led with 32.8%, followed by BetMGM (18.8%), Rush Street (17.5%) and then DraftKings with 14.4%.

Analyst takes

Flutter: In the wake of the positive comments from DraftKings about profitability, the team at Jefferies said the key takeaways from the call were supportive of a “positive profit trajectory” for FanDuel. Discipline from DraftKings and BetMGM will benefit FanDuel, they added.

• They also noted that consensus estimates for FanDuel “continue to creep higher”. 

• They noted that company-compiled consensus shows US EBITDA estimates for FY23E have risen from £43m in Jul22 to £97m now, with FY24E up to £386m from £306m.

Digital ’Bowl

EKG suggests DraftKings was the biggest spender on digital ads around last weekend’s game.

The only one I know: DraftKings’ market-leading outlay of ~$4.5m on digital advertising around the Super Bowl is a sign of its reliance on NFL to drive volumes, according to analysts at EKG, who teamed up with Pathmatics to analyze digital ad spend. 

• DraftKings accounted for 46% of the $9.7m total spend of the 11 brands tracked and upped its spending by 34%.

• Next up was FanDuel, which decreased spending by 30% to $2.2m, followed by BetMGM on $1.2m, which represented a 45% decrease.

The week ahead 

Caesars heads the earnings roster with its already pre-announced figures.

All eyes will be on Caesars this week as the group publishes its results on Tuesday. Its pre-announced Q4s showed digital adj. EBITDA losses ahead of consensus at $4m-$6m vs. -$360m in Q421, with total adj. EBITDA expected to reach $947m-$967m, or 65% at midpoint. 

• Analysts have commented that digital EBITDA would likely have hit profitability but for the payouts Caesars made to Mattress Mack for his World Series bets. 

• Although regionals may miss Street estimates, the strong trading trends, occupancy rates and potential macro impacts in Las Vegas are likely to focus analysts’ attention.  

Close watch: on the affiliate front, Catena Media’s results will also be closely watched on Wednesday. 

• The group has been selling off non-US assets such as AskGamblers and its paid media division, while major rival Better Collective acquired a 5% stake in the group earlier this month. 

Full gallop: Churchill Downs publishes its Q4s on Wednesday, with the analyst call taking place on Thursday, while REIT operator VICI Properties will release its Q4s on Thursday, with the analyst call also the following day. 

Taxing times: The latest issue of Due Diligence (which will be sent on Tuesday) sees E+M collaborate with Regulus to take a look into the arguments put forward recently in New York for lowering the tax rate and adding iCasino.  

Startup Focus – Betscope.io 

Who, what, where and when: Betscope is a site offering bettors a route to find the most profitable bets and is led by CEO Colin Davy, who co-founded the firm with engineering and data scientists who previously worked at the Action Network and other tech firms.

Funding backgrounder: Betscope is currently bootstrapped and is not looking to raise money at the moment, “although we would be open to that possibility if it came from the right partners”, Davy adds.  

The pitch: Davy says Betscope was developed to find the weakest pricing points across betting markets and “makes discovering those markets as frictionless as possible”.  This is done through a combination of data “focus, expertise in UI/UX and the ability to make intelligent and analytics-driven price comparisons in fast-changing odds environments”.

• A key feature of Betscope is that it “removes as much friction as possible from price discovery and executing bets”. The group is planning “to move forward with monetization strategies this year”, adds Davy. 

What will success look like? Betscope sees itself not just as a standalone betting product, “but a valuable and complementary partner to many other companies in the betting space, including operators, content creators and other sports-betting tools”. 

• “Betscope’s vision of success is to become an integral partner to many of these companies, boosting their value in the process and providing a differentiated user experience for all of its and its partners’ users,” says Davy.

• “Our operating costs are sufficiently low that there are no hard revenue requirements, only enough to generate a profitable business.”  

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Growth company newslines

Mojo: The sports stars stock market has announced that more than 100 NBA players debuted on the Mojo market last week ahead of the NBA All-Star Game this past weekend.

Player retention provider Xtremepush has teamed up with free-to-play game provider Chalkline for a solution that combines hyper-personalized omni-channel messaging around live and pre-match prediction games.

Newslines 

The Macau government collected $2.37bn in gaming tax in 2022, a 44% decline on the previous year.

On social

White Noise @WhiteNoise1879

Actual footage of Fulham getting back on the team bus. #ffc

The Terrace @theterracelife

Describe your clubs result, using a gif!

11:16 AM ∙ Feb 19, 2023

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Calendar

• Feb 21: Caesars Q4

• Feb 21: Due Diligence

• Feb 22: Catena Media FY

• Feb 23: Churchill Downs Q4

• Feb 24: VICI Q4

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