DraftKings is taking advantage of its surging stock price to offer 33 million shares of stock in a deal that could raise $1.3 billion based on Tuesday’s closing price of $40.57.
In conjunction with the offering, the online sports gambling company gave stronger-than-expected revenue guidance for the second quarter of $70 million to $75 million, compared with a Morgan Stanley estimate of $52 million and a consensus projection of $42 million.
DraftKings (ticker: DKNG) shares traded down nearly 4% on Wednesday, to, $38.99
The offering will include 14 million shares from the company and 19 million from selling shareholders, including CEO Jason Robins, who plans to sell about 1.5 million shares in the deal, according to the prospectus.
There is a long list of selling shareholders listed in the prospectus, including Wellington Management and Franklin Advisers, which both bought stakes in the company in December 2019, when DraftKings announced its intention to go public through a merger with Diamond Eagle Acquisition, a special purpose acquisition company.
Wellington and Franklin, which is part of Franklin Resources (BEN), paid about $10 a share for their stock and are selling about 10% of their stakes in the offering. Wellington will hold 11.4 million shares following the deal and Franklin, 6.5 million shares, assuming underwriters exercise their overallotment option on the deal.
In a client note late Tuesday, Morgan Stanley analyst Thomas Allen wrote that DraftKings’ better-than-expected projected revenue for the second quarter was “likely driven by stronger than expected iGaming revenue and strong results for sporting events that have occurred (e.g. record PGA, Nascar, UFC volumes).”
The company also capitalized on a charity golf match between Tiger Woods and Peyton Manning against Phil Mickelson and Tom Brady in May that was DraftKings’ highest-grossing golf event ever.
DraftKings is doing better than many expected given the absence of major sports during the second quarter.
Its shares have more than doubled since the company went public in late April through the Diamond Eagle merger. Investors have been enthusiastic about the company’s growth prospects as online sports gambling spreads across the country. DraftKings is the only pure play on U.S. online sports gambling.
The company, however, is currently unprofitable, having lost 21 cents a share in the first quarter on revenue of $113 million. DraftKings is richly valued at about 20 times projected 2021 revenues of $700 million.
DraftKings and FanDuel, which is controlled by U.K. gambling company Flutter Entertainment, are the leaders in New Jersey, the most important online sports gambling market. FanDuel’s market share is around 40% in the state and DraftKings is just behind it. Both have leveraged their strength in daily fantasy sports to leading positions in the online sports gambling. DraftKings also is focused on internet casino games or IGaming, which include blackjack and roulette. Internet casino gambling has grown rapidly in New Jersey.
After the offering, the company will have about 349 million shares outstanding, valuing it at about $14 billion, making it the second-largest U.S. gambling company after Las Vegas Sands (LVS).
DraftKings had ample cash of about $450 million on its balance sheet before the offering, but the company decided to capitalize on its strong share price to likely add more than $500 million in cash to its holdings.
Write to Andrew Bary at andrew.bary@barrons.com
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DraftKings Is Selling Shares After a Surge in Its Stock - Barron's
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