There's no doubt that DraftKings' second-quarter earnings report this week generated a lot of attention, mostly because the company finally reported a profit, with quarterly net income of $63.8 million.
However, despite this, DraftKings' stock price fell immediately after the earnings release, as the company still reported an operating loss while some analysts expected its revenue to be higher. Since then, the stock price has continued to fall, at one point down about 12%, and as of this writing, shares are trading at $32.13.
Nonetheless, CEO Jason Robins and recently appointed CFO Alan Ellingson addressed shareholders and answered follow-up questions.
Illinois Surcharge
Customer acquisition and premium rates are two important topics DraftKings discusses with shareholders.
This comes as Illinois’ governor signed a law in early June that sets sports betting taxes at 40%, making it the second-highest gross receipts (GGR) tax state after New York (currently at 51%).
However, Robins and Ellingson seemed confident, explaining that "outperformance between customer acquisition and Jackpocket should offset the tax issues in Illinois."
To combat this, DraftKings will pass on the tax surcharge to customers in Illinois, New York, Pennsylvania and Vermont. This surcharge will be included in the bet slip and will only apply to winning bets.
When asked about it, the pair believed that "in the long run, players will appreciate this transparency" and that it is "necessary for us to compete with the illegal market." Some shareholders have questioned whether this is an effort to draw attention to the issue and potentially pressure regulators to lower fees through customer dissatisfaction, but DraftKings denies this.
United States and Latin America
The topic of Latin America was also brought up, but they quickly dismissed the idea: "We probably won't grow organically, but through M&A." However, Robins clarified that DraftKings is not interested in this at the moment because the team Completely focused on the North American market: "Focus, focus, focus! Let's win our chance at online gaming in the US."
As for its strategy, specifically its high marketing costs that have been a major factor in its financial adjustments, DraftKings explained that “we do not react competitively but make decisions based on our three-year return rule as well as customer data. "
“The fish are biting”
Robins and Ellingson are enthusiastic, saying "there's a lot of momentum in the industry right now" and "there's a lot of buzz surrounding the NFL season," emphasizing that "you have to fish when the fish are biting."
"The good news for us is that most of our marketing spend is flexible...and we can easily make adjustments," Robins and Ellingson said. "If we see any changes, we will adjust our spending and adjust our approach."
As for existing customers, they explained that "over time, you'll see a decrease in [player] quality." According to the team at DraftKings, "You're going to get your strongest players in the first few years of a state release," and "the players you get a few years later are weaker than the players you get on day one."
