DraftKings Earnings Preview—10% Stock Price Move Expected

DraftKings is expected to report a quarterly earnings-per-share of $0.19 on $1.12 billion in revenue

• DraftKings reports quarterly earnings Aug. 1 after the stock market closes.

• The daily fantasy sports and sportsbook giant has faced taxation pushback from certain states, but the company still shines as one of the top online sportsbooks in the United States.

• Growth initiatives will likely be a focal point for this earnings call.

DraftKings earnings preview

The NFL season is just around the corner, and DraftKings (DKNG) is on deck to report quarterly earnings Aug. 1 after the stock market closes. With the buzz that surrounds the start of the new football season, active investors are paying attention to DraftKings earnings and the stock price movement after the announcement.

The sports betting giant is expected to report a quarterly earnings-per-share (EPS) of $0.19 on $1.12 billion in revenue. It boasts a strong earnings history, exceeding EPS estimates four quarters in a row.

In the last shareholder letter, DraftKings offered words of encouragement for the rest of 2024: “Importantly, the midpoints of our updated 2024 revenue and Adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] guidance ranges imply a year-over-year adjusted EBITDA flow-through percentage of 53%, based on continued excellent performance across our core value drivers as we rapidly expand our gross margin and exert discipline on our cost structure, while simultaneously investing in promotions and marketing in accordance with our LTV (lifetime value) to CAC (customer acquisition cost) targets. We will continue to focus on our dual goals of improving our financial expectations while also investing in customer acquisition and our product and technology capabilities."

This sentiment seems to be on par with what's expected this quarter, with a similar revenue estimate as last quarter but a much-improved earnings per share estimate.

DKNG stock has had a volatile start to 2024, with a quick rally to a high of $49.57 after opening the year at $34.62. The stock felt some heat after being hit with an Illinois sports betting tax update that would greatly increase taxation in one of the biggest markets DraftKings operates in. Since then, DKNG stock has fluttered around $36 per share.

DKNG stock has an expected move of +-$3.64 based on current implied volatility, which is about 10% of the stock price. This is one of the bigger earnings expected moves, as we typically see most companies fall within the 5-10% range.

Looking further out in time, we can see that the expected stock price move through the Jan 2025 cycle is +-9.23, which tells us that even though this earnings call is expected to move the stock, we should still expect more volatility through the end of the year.

Bullish on DraftKings Stock for Earnings

Traders and investors that are bullish on DraftKings are looking for an EPS and revenue beat, with a strong guidance for the rest of the year. The fact that the EPS estimate has increased, but the revenue estimate has remained the same as last quarter tells us that the market is expecting efficiency improvements from an earnings standpoint. If DraftKings can deliver, we could see the stock price rally after the earnings call.

Bearish on DraftKings Stock for Earnings

Earnings traders that are bearish on DraftKings are expecting an earnings miss this quarter - I think there is something to be said about the Illinois taxation increase - will other big markets follow suit? If so, how does that impact the bottom line for DraftKings long-term? If there is weak annual guidance on the call, and DraftKings misses on EPS or revenue, we could see the stock price fall after the call.

I've been in DKNG stock the entire year, as it is regularly my year-long options trade - tune in to Options Trading Concepts Live on Thursday at 11am CST for a look at DraftKings earnings trades ahead of the announcement!

Mike Butler, tastylive director of market intelligence, has been in the markets and trading for a decade. He appears on Options Trading Concepts Live, airing Monday-Friday. @tradermikeyb  

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