DraftKings (NASDAQ:DKNG), a post-SPAC, plunged by 14.5% last week and almost 25% in the quarter as of last week. Momentum investors probably saw this coming, given the stock’s weakness after the March peak.
What happened?
DraftKings posted Q1 GAAP EPS of a 36 cent loss. Revenue more than doubled by 252.4% Y/Y to $312 million. Monthly unique payers rose 114% Y/Y. So, at an MUP of $61, up 48% Y/Y, the loss is of concern.
DKNG posted $312 million in revenue but $346 million in losses. The company has a broken business model. When markets welcomed SPACs and did not ask questions, the user growth justified the share price. When profits and business models matter today, the opposite is true.
DraftKings has no choice but to expand in all States next. Still, the 35 times sales (rounded up) is an expensive proposition. The market will ruthlessly compress that multiple daily. Post-SPACs all need to justify their business model by posting shrinking losses and sustained triple-digit growth. Without that improvement, DKNG is at risk of falling further. Workhorse (NASDAQ:WKHS) is another example of a failed post-SPAC.
WKHS failed to win a USPS deal, relying on one customer. DKNG is in a better market with higher prospects, especially when governments open up online sports gambling markets.
