Does mid-cap Gambling company DraftKings have a sustainably profitable business model? By studying its gross margins and comparing them to its operating margins, we can gain insight into quality of its business. With gross margins at 38.7%, you might be telling yourself the DraftKings is profitable — but there is more to the story.
Gross margins take into account only the cost of revenue, meaning the expenses directly related to each sale. So it's important to also look at operating margins, which take into account overhead costs. One way to look at it is that gross profit gives insight into DraftKings's market and the viability of its business model. Operating margins, on the other hand, show you how efficiently the company is implementing this business model.
|Date Reported||Revenue ($ MM)||Cost of Revenue ($ MM)||Gross Margins (%)||YoY Growth (%)|
DraftKings's gross margins are currently in the green, but this might not be the case for long. Since its cost of revenue is growing at a rate of 181.4% compared to 100.5% for its revenues, its gross margins have been shrinking -23.5% on average each year.
|Date Reported||Total Revenue ($ MM)||Operating Expenses ($ MM)||Operating Margins (%)||YoY Growth (%)|
The table above tells us that, on average, DraftKings has not been profitable over the last four years, which should be a warning sign to prospective investors. Indeed, the company's operating margins are sinking at rate of -95.3%