Four things we learned from DraftKings’ 2021 Investor Day

As DraftKings nears its first anniversary of being a publicly listed company, its story is one that has attracted the attention of national media and keen retail stock investors, as well as the wider financial industry.

Its share price has rocketed to dizzying heights, increasing the online operator’s market cap to almost $26bn as of today.

At the time of writing, DraftKings’ stock was up 4% from early trading to $67, settling near the top end of the operator’s wide price range over the last 12 months.

Analysts have been consistently bullish on DraftKings’ potential, despite the company having racked up seismic losses of $855m and $142.7m in 2020 and 2019 respectively.

During yesterday’s 2021 Investor Day, which was a virtual affair, the Boston-based company’s C-suite offered up some color to DraftKings’ marketing, product, and technology processes, presenting viewers with some unseen statistics in its performance in 2020.

Here are four things we learned from the presentation and subsequent Q&A session.

TAM to party

DraftKings co-founder and CEO Jason Robins said the firm had increased its TAM (Total Addressable Market) projection in the last few months based on Q4 growth in key markets like New Jersey and the potential for single-event sports wagering to launch in Canada this year.

Very optimistically, DraftKings’ model assumed 100% legalization of online sports betting, while igaming could see the overall North American market grow to $67bn at maturity, when combining both verticals.

He said Canada alone represented an online sports betting TAM of approximately $2.5bn and igaming TAM of $4bn.

Based on DraftKings’ current market share and the US’s rate of legalization, Robins said his firm stood to achieve between $3bn and $4.3bn gross annual revenue for online betting at maturity.

He projected an additional $1.8bn to $2.4bn in gross igaming revenue based on a conservative annual growth rate of 5%, and no additional growth beyond 2023.

Robins later said the model used accounted for the spike in online gaming that Covid-19 had brought about in 2020.

Blurred lines

Product and technology took center stage in the presentation as Robins insisted product differentiation was a key reason for DraftKings’ early success and would be the driving factor for remaining at the top in terms of market share.

The operator launched a stand-alone casino app in four states in June of last year, to really grow the vertical outside of its cross-selling efforts as group president for global product and technology Paul Liberman said 57% of sportsbook users had played casino games in 2020.

He also highlighted the value of exclusive content as he told viewers 54% of igaming handle in 2020 was derived from in-house games.

However, the firm also sought to exploit the cross-sell opportunity further by launching sports themed games, like March Madness Roulette, which embedded a roulette wheel onto a basketball court.

Another game, dubbed Slider Blackjack, offered up an embedded blackjack game into the sportsbook product, allowing bettors to slide between the verticals while placing sports bets.

“Since our last analyst day, we were the first to market in three jurisdictions with both our standalone product and our sportsbook embedded igaming product. We launched over 20 new games and continue to invest heavily in our home-grown games,” Liberman said.

DFS is not dead

DraftKings has been quick to dispel any suggestion that DFS is a dying vertical, as it increased its long-term DFS revenue forecast by $100m to $400m.

Robins said the operator had seen “incredible growth” via new customers and a slowing rate of cannibalization brought about by the launch of sports betting.

“Given how many new customers we were able to acquire on DFS it made sense to us [to increase those projections],” the CEO said.

“We’ve actually seen that [cannibalization] subside. A lot of customers have come back and started playing more DFS even if they do continue to use the sportsbook, so that’s something that has been a bit of a change since last year.”

Group CFO Jason Park said additional data had proved that DFS had a unique value proposition that “really stands on its own.”

“If you combine that with our continued investment in the product, we feel better about the outlook,” Park said.

The presentation revealed that the operator had consistently cross sold over 60% of its DFS players to sports betting and igaming in the first 12 to 18 months of launching in a new state.

It’s not what we need, it’s what we might want

Of course, M&A got a minor mention during the Q&A session as one analyst probed Robins on what type of acquisitions he might be eyeing up.

In DraftKings’ Q2 2020 results Robins said the operator was in a good position to explore “opportunistic M&A”, although the firm did not need to make another big purchase after the SBTech acquisition last year as part of the merger with SPAC Diamond Eagle Acquisition Company.

Since then, industry rumors have swirled surrounding DraftKing’s potential interest in Canadian media and betting business The Score, particularly as Canada looks to open its doors to single-event-wagering.

Robins largely reiterated his point that there was “nothing we need”, but did offer some more color on which areas he would consider making bolt-on acquisitions in.

“Bolt-on is a good way to describe one the areas we’re looking at and global expansion is one area that might be of interest,” he said.

“Media is another area that might be of interest,” Robins added. “Capabilities for some small tuck-ins we’re also looking at.”

“There’s a lot of build versus buy analysis so it’s more opportunistic than anything else and if we see good opportunities emerge we’re going to go after them, but we’re also going to stay very disciplined and only do deals if they are the right ones,” he concluded.