While online gambling has attracted a lot of interest and generated additional revenue for DraftKings (DKNG), the stock remains a trade and not a long-term hold, says Real Money contributor Stephen “Sarge” Guilfoyle.
Even though online gambling has been legalized in many states such as New York, the stock’s recent selloff put the “shares right back at the central trend line of a six month long downward sloping Pitchfork model,” he wrote in a recent Real Money Pro column.
DraftKings stock is down more than 35% so far this year.
“Would I buy this dip?” Guilfoyle asked. “Maybe for a trade, with the understanding that I was gambling on gambling. Would I invest in DraftKings? Not with my money. Not with your money. Not with your money even if I hated your guts. No.”
While revenue for the gambling site rose during the fourth quarter by 46.9% from the year ago period, DraftKings also reported the cost of revenue increased 59% to $253.2 million. Sales and marketing expenses (not included in cost of revenue) rose by 45% to $278.4 million while general and administrative costs rose by 39% to $240.8 million. The company also shelled out another $69.6 million in product and technology costs which left it with a loss of $386.8 million from operations.
The company increased its guidance for the first quarter of 2022 with full year 2022 revenue generation at $1.85 billion to $2 billion, an increase from its prior guidance of $1.7 billion to $1.9 billion and would demonstrate year over year growth of 43% to 54%.
Here’s the problem, says Guilfoyle: “DraftKings estimates adjusted EBITDA to land between a loss of $825 million and $925 million while Wall Street estimated $700 million on that item.”
