DraftKings ,
the online sports betting company, was falling Friday after reporting a third-quarter loss wider than analysts’ expectations and revenue that missed forecasts.
DraftKings
(ticker: DKNG) posted a quarterly loss of $1.35 a share on revenue of $213 million.
Analysts expected DraftKings to report a third-quarter loss of 98 cents a share on revenue of $236.9 million. Revenue a year earlier was $133 million.
Operating expenses in the quarter rose to $759 million from $481 million. Sales and marketing costs rose to $304 million from $203 million.
The company said average revenue per monthly unique player was $47 in the third quarter, a 38% increase from the same period in 2020.
The company boosted the midpoint of its revenue guidance for fiscal 2021.
DraftKings said it expects fiscal-year revenue of $1.24 billion to $1.28 billion, vs. previous guidance of $1.21 billion to $1.29 billion. Analysts have been calling for fiscal-year revenue of $1.29 billion.
For fiscal 2022, DraftKings said it expects revenue of $1.7 billion to $1.9 billion.
Rival
Penn National
(PENN) reported Thursday that third-quarter earnings fell almost 40% from a year earlier, coming in well below analysts’ expectations. The company blamed Hurricane Ida for slowing momentum into the second half of August and into September.
Last last month, DraftKings dropped its plan to acquire British gambling giant Entain in a $22.5 billion deal.
DraftKings shares fell 3.3% to $43.22. The stock has fallen 4% year to date.
Write to Joe Woelfel at joseph.woelfel@barrons.com
Futures ticked higher after jobs figures showed that hiring picked up in October and the unemployment rate fell. Here’s what we’re watching ahead of Friday’s opening bell:
Peloton Interactive shares went off the wheels, plunging 34% premarket. The maker of connected fitness equipment reported its smallest quarterly gain in subscriber growth since it became a public company two years ago, and said that fewer people are joining its online workouts.
Airbnb gained 5% ahead of the bell. The home-sharing company posted record revenue in the third quarter, punctuating its rebound from the collapse in bookings during the early days of the pandemic.
Nvidia added 2.1% premarket. Wells Fargo on Thursday lifted its price target for the stock, and it notched its best one-day performance in 19 months.
Pfizer shares climbed 12% after the drugmaker said a preliminary look at study results indicated that its experimental pill was highly effective at preventing people at high risk of severe Covid-19 from needing hospitalization or dying.
Expedia jumped 14% after the online travel agency turned a profit for the third quarter, driven by the performance of its Vrbo business, domestic travel and improvements across its lines of business.
Square dropped 3.9%. The payments firm reported weaker-than-expected revenue as it brought in far lower revenue from cryptocurrency bitcoin than what analysts were expecting.
GoPro rose 11%. The camera maker easily exceeded expectations for its most recent quarter and expressed confidence in its ability to hit its full-year targets.
DraftKings shares fell 6.1% after the online-betting company posted third-quarter revenue growth that fell short of analysts’ expectations and turned in a steeper net loss than had been anticipated.
Goodyear Tire & Rubber and Dominion Energy are due to report earnings before the opening bell.
Yelp climbed 5.9% off hours. The online-reviews site reported record-tying quarterly revenue and earnings that blew past Street estimates.
American Homes 4 Rent slipped 0.9% off hours. The home-rental company reported better-than-expected results in the latest quarter as the demand for single-family home rentals remained strong.
Boeing added 2.4%. Current and former directors have reached an approximately $225 million agreement to settle a shareholder lawsuit that claimed the plane maker’s board failed to properly oversee safety matters related to the 737 MAX.
Chart of the Day
Investors have jolted government bond markets in the past month as they reassess what will happen to the basic cost of money that underpins the financial system. But other markets don’t seem to care.
DraftKings Inc.
DKNG,
+2.20%
said Monday it has entered an agreement to acquire Golden Nugget Online Gaming Inc.
GNOG,
+2.68%
in an all-stock deal valued at about $1.56 billion. The acquisition “will enable DraftKings to leverage Golden Nugget’s well-known brand, iGaming product experience and existing combined database of more than 5 million customers,” the sports betting company said in a statement. As part of the deal, DraftKings has entered a commercial agreement with Fertitta Entertainment Inc., the parent company of the Houston Rockets, Golden Nugget LLC and Landry’s LLC, and a leader in the gaming, restaurant, hospitality, and sports entertainment industry, the company said in a statement. DraftKings is expecting the deal to generate $300 million in synergies at maturity. Under the terms of the deal, Golden Nugget shareholders will receive 0.365 DraftKings share per each share owned. The deal is expected to close in the first quarter of 2022. Golden Nugget shares soared 29% premarket, while DraftKings was down 2.7%.
Investors who bet against stocks are targeting special-purpose acquisition companies, one of the hottest growth areas on Wall Street. The dollar value of bearish bets against shares of SPACs has more than tripled to about $2.7 billion from $724 million at the start of the year, according to data from S3 Partners.
Some of the stocks under attack belong to large SPACs that surged in recent months, in part because they were backed by high-profile financiers. A blank-check company created by venture capitalist
Chamath Palihapitiya
that plans to merge with lending startup Social Finance Inc. is a popular target, with 19% of its shares outstanding sold short, according to data from S&P Global Market Intelligence. The short interest in
Churchill Capital Corp. IV,
a SPAC created by former investment banker
Michael Klein
that is merging with electric-vehicle startup Lucid, more than doubled in March to about 5%.
Others are wagering against companies after they combine with SPACs. Muddy Waters Capital LLC announced last week it was betting against
XL Fleet Corp.
, a fleet electrification company that went public in December after merging with a SPAC. XL has since said Muddy Waters’s report, which alleged XL inflated its sales pipeline and made misleading claims about its technology among other issues, had “numerous inaccuracies.”
XL’s stock price dropped the day Muddy Waters released its report by about 13%, to $13.86, from its prior close on March 2. Shares closed Friday at $12.79.
Shares of
Lordstown Motors Corp.
fell nearly 17% Friday after Hindenburg Research released a report saying the electric-truck startup had misled investors on its orders and production. The company, which merged with a SPAC in October, said the report contained half-truths and lies. The short interest in Lordstown shares rose to 5% from 3.4% in the week before the report’s publication, according to data from S&P.
“SPACs are an area of focus,” said Muddy Waters’s
Carson Block.
The veteran short seller said SPACs largely make up the universe of companies he views as both “abysmal” and relatively free from technical challenges, such as high short interest, which can make betting against them difficult.
SPACs are shell firms that raise capital by issuing stock with the sole purpose of buying or merging with a private company to take it public. They are dominating the market for new stock issues, becoming a status symbol for celebrities while pumping the value of acquisitions, like betting company
DraftKings Inc.,
into the tens of billions of dollars.
Hedge funds that buy into SPACs early see them as a way to make lofty returns without much risk. Individual investors are attracted by the chance to get positions in newly public companies that they could rarely purchase through traditional IPOs. The Securities and Exchange Commission issued a statement on Wednesday warning that it “is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it.”
A monthslong rally in the stocks lost steam recently amid a broad selloff in technology and high-growth companies. An index of SPAC stocks operated by Indxx fell about 17% from mid-February to March 10, while the Nasdaq Composite Index declined about 7.3% over the same period.
“These are all momentum stocks, and a lot of people want to short them,” said
Matthew Tuttle,
whose firm Tuttle Tactical Management runs an exchange-traded fund that allows investors to hold a portfolio of SPAC stocks. Mr. Tuttle is preparing to launch an ETF that bets against “de-SPAC” stocks of companies that have merged with a SPAC—like electric-truck manufacturer
Nikola Corp.
and baked-goods maker
Hostess Brands Inc.
—and a separate fund that invests in the stocks.
Private companies are flooding to special-purpose acquisition companies, or SPACs, to bypass the traditional IPO process and gain a public listing. WSJ explains why some critics say investing in these so-called blank-check companies isn’t worth the risk. Illustration: Zoë Soriano/WSJ
Postmerger companies are particularly attractive to short because they have larger market capitalizations, making their shares easier to borrow, and because early investors in the SPACs are eager to sell shares to lock in profits, analysts and fund managers said.
Short sellers borrow stocks they believe are overvalued and immediately sell them, hoping to repurchase the shares for a lower price when they need to be returned and to pocket the difference. The strategy proved dangerous in recent months when individual investors organized on social media to push up stocks like GameStop Corp., forcing short sellers to buy shares and cap their losses, helping to drive prices still higher.
Continued strong investor demand for SPACs could catch short sellers in a similar squeeze. Shorting SPACs can also be risky because their shares have a natural floor at $10, the price at which they can be redeemed before a merger, and because they are prone to sharp price moves, analysts said.
Still, the portion of shares sold short in SPACs and their acquisitions is climbing.
A blank-check company created by venture capitalist Chamath Palihapitiya that plans to merge with lending startup Social Finance Inc. is a popular target.
Photo:
Brendan McDermid/Reuters
Some are betting against stocks they believe rose too fast, to unsustainable valuations. The price of bioplastics company
Danimer Scientific Inc.
nearly tripled to $64 in the first six weeks of the year after it was bought by a SPAC. The short interest in Danimer stock has climbed to 8.5% from around 1% in January, and its share price has traded down to about $42, according to data from S&P.
Others are making bearish bets to hedge against potential losses in SPAC stocks they own.
Veteran short seller
Eduardo Marques
cited SPACs and their boosting the number of U.S.-listed stocks as a short-selling opportunity, according to a pitch for a stock-picking hedge fund called Pertento he plans to launch this year. America’s roster of public companies had shrunk from the mid-1990s onward, but that trend has recently reversed, partly because of SPACs.
Their popularity has helped spark new Wall Street offerings.
Goldman Sachs Group Inc.
this year started offering clients set baskets of similar stocks to short, pitching them as a way to hedge SPAC exposure, people who have seen the offering said. Clients typically customize the baskets Goldman offers, which are thematic and sector-focused, such as on bitcoin and electric vehicles.
Kerrisdale Capital founder
Sahm Adrangi
started shorting postmerger SPAC companies earlier than most, with a public bet in November against the stock of frozen-food maker
Tattooed Chef Inc.,
which still trades above its price at that time. But the stock has fallen about 13% during the recent market slump.
“We saw these stocks go up a lot and now that people are de-risking, these highflying SPACs are coming down to earth,” Mr. Adrangi said.
—Amrith Ramkumar and Mike DeStefano contributed to this article.
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How long do you think the SPAC boom will continue, and why? Join the conversation below.
Write to Matt Wirz at matthieu.wirz@wsj.com and Juliet Chung at juliet.chung@wsj.com