$DS - Drive Shack Is Poised to Capture Pent-up Demand for Social Entertainment Experiences

Summary With pent-up consumer demand people are looking for social and exciting experiences outside of the house, Drive Shack has the answer with the perfect social entertainment experience Drive Shack brings people together in social and technology driven environment (Similar to top golf if you are familiar with the concept). Golf games combined with a bar/restaurant. They recently beat earnings, have a strong financial position, and are just starting to hit their stride with significant partnerships and new venues opening up this summer. Consumer Market Overview The Return of Consumer Spending (here) Last year’s federal stimulus packages helped real household income grow 3.7% in 2020, more than twice as fast as in 2019. A return to normal lifestyle activities combined with significant pent-up consumer demand will likely spell the best kind of news for the hard-hit hospitality, travel and restaurant sectors. The Bottom Line - The pieces are in place for above-trend retail growth in 2021. Consumers are in a very strong position as vaccines hopefully bring the pandemic to an end. Consumer Spending by Income Group (here) Company Overview: Drive Shack Drive Shack Inc. is a publicly traded leisure and entertainment company focused on bringing people together through technology driven competitive socializing experiences. Recent investors presentation is here – provides a great rundown of the business and financials. I recommend checking it out (better than me providing a bunch of images) How they make money Operating traditional golf course Drive Shack Venues – they currently operate 4 and are committed to opening 2 more Puttery Venues – What is Puttery? Using state-of-the-art mini golf, Puttery combines competitive socializing, food & beverage and technology to create one remarkable experience. the first 2 are opening this summer in Dallas TX, and Charlotte, NC – looking to expand and have a number of targets in the pipeline. They expect to open or nearly complete 5 additional Puttery locations in 2021 and open 10 venues in 2022   Key Financial Metrics P/S is 1.24 – the lower the P/S ratio, the more attractive the investment, and this is relatively low in the leisure segment when compared to it’s peers EPS Growth is 62% for next year – this is a positive sign for DS Institutes own 29% - this signals that they are confident in this company Analyst have a target price of $5.00 – which seems fair considering growth potential of DS ~$86M of unrestricted cash on hand as of February 28, 2021 – great to cover expansions and growth costs  5 Year DCF for Drive Shack (here) Note – DCFs are obviously sensitive to inputs so please take this into consideration and check out the model/adjust inputs for a few scenarios. I projected revenue growth at 20% for 2021, 2022, and 2023. Based on these assumptions the fair value price for DS is $7.19 Insider Buying and Selling (here) Buying is typically a good sign, whereas selling is a bad sign. initially looking at the 2 sells by insiders might be a bit concerning, but if we look at the total number of shares sold it only represents 2% of the total shares traded. I view this as a positive sign for Drive Shack INSIDER TRADE 3 MONTHS 12 MONTHS Number of Open Market Buys 2 7 Number of Sells 0 2 Total Insider Trades 2 9 Number of Insider Shares Traded INSIDER TRADE 3 MONTHS 12 MONTHS Number of Shares Bought 674,305 784,511 98% Number of Shares Sold 0 19,594 2% Total Shares Traded 674,305 804,105 Net Activity 674,305 764,917 Recent Timeline of Drive Shack March 14, 2021 - Drive Shack Jumps 18% As 4Q Earnings Exceed Estimates (here) - analysts expected significantly lower revenue due to COVD but DS was able to beat these estimates Drive Shack's (DS) earnings of $0.13 per share compared favorably with the year-ago period's loss of $0.25 per share. Analysts were expecting a loss of $0.19 per share. Jan 29, 2021 - Drive Shack Inc. Announces Pricing of Public Offering of Common Stock (here) – price dropped to ~$2.40 based on this news, which makes sense when there is a public offering Priced its underwritten public offering of 20,833,334 shares of common stock at a price to the public of $2.40 per share for gross proceeds of approximately $50 million. Jan 26, 2021 - Drive Shack Inc. Announces Collaboration with Professional Golfer Rory McIlroy and its New Indoor Entertainment Golf Experience, Puttery (here) – price popped to ~$3 on this news "I am thrilled to partner with the Drive Shack team on their new entertainment golf experience," said Rory McIlroy. "Once Covid is under control, the ability to combine high-tech mini-golf with a high quality food & beverage menu will make Puttery a great experience for any social gathering. I am personally making a financial investment in the growth of future Puttery venues across the country and can’t wait to debut our first Puttery in Dallas this summer." From my perspective this is a huge partnership and they might be looking to get other golfers on board (John Daly might be a good fit…)   Risks Building Costs/Delays – They are banking on opening 2 Puttery locations which will drive significant revenue starting this summer. If there are delays in completing these venues this will impact their cash flow. They have projected the total costs to develop these locations and with any type of construction project there is always the risk of cost overrun Current Ratio is 0.7 - The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. A current ratio of less than one may seem alarming, although different situations can affect the current ratio in a solid company. This might be a bit concerning for DS. Negative revenue through 2020 due to COVID played a role and they are still developing a number of new venues. Something to be aware of, especially if there is a delay in brining the 2 new Puttery venues online.   TLDR Pent-up consumer demand will continue to drive spending in the entertainment space, especially social activities outside of the house (bars, restaurants, activities, etc.) Drive Shack provides the perfect combination of social activity, bar/restaurant, and technology They landed a great strategic partnership, are aiming to open 2 new venues in the summer of 2021, if executed properly they can capture the pent-up demand for social entertainment experiences

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GeorgeL88

Mar 25, 2021

-10.93%

Change % Since Posting

3.11

Price When Posted

-0.34

Change Since Posting

DS

Drive Shack Inc

2.77

0.00
0.00%
Current Price

$DS - Drive Shack Is Poised to Capture Pent-up Demand for Social Entertainment Experiences

bullish

Summary

  • With pent-up consumer demand people are looking for social and exciting experiences outside of the house, Drive Shack has the answer with the perfect social entertainment experience
  • Drive Shack brings people together in social and technology driven environment (Similar to top golf if you are familiar with the concept). Golf games combined with a bar/restaurant.
  • They recently beat earnings, have a strong financial position, and are just starting to hit their stride with significant partnerships and new venues opening up this summer.

 

Consumer Market Overview

The Return of Consumer Spending (here)

  • Last year’s federal stimulus packages helped real household income grow 3.7% in 2020, more than twice as fast as in 2019.
  • A return to normal lifestyle activities combined with significant pent-up consumer demand will likely spell the best kind of news for the hard-hit hospitality, travel and restaurant sectors.
  • The Bottom Line - The pieces are in place for above-trend retail growth in 2021. Consumers are in a very strong position as vaccines hopefully bring the pandemic to an end.

Consumer Spending by Income Group (here)

Company Overview: Drive Shack

Drive Shack Inc. is a publicly traded leisure and entertainment company focused on bringing people together through technology driven competitive socializing experiences. Recent investors presentation is here – provides a great rundown of the business and financials. I recommend checking it out (better than me providing a bunch of images)

 

How they make money

  1. Operating traditional golf course
  2. Drive Shack Venues – they currently operate 4 and are committed to opening 2 more
  3. Puttery Venues – What is Puttery? Using state-of-the-art mini golf, Puttery combines competitive socializing, food & beverage and technology to create one remarkable experience.
    1. the first 2 are opening this summer in Dallas TX, and Charlotte, NC – looking to expand and have a number of targets in the pipeline. They expect to open or nearly complete 5 additional Puttery locations in 2021 and open 10 venues in 2022

 

Key Financial Metrics

  • P/S is 1.24 – the lower the P/S ratio, the more attractive the investment, and this is relatively low in the leisure segment when compared to it’s peers
  • EPS Growth is 62% for next year – this is a positive sign for DS
  • Institutes own 29% - this signals that they are confident in this company
  • Analyst have a target price of $5.00 – which seems fair considering growth potential of DS
  • ~$86M of unrestricted cash on hand as of February 28, 2021 – great to cover expansions and growth costs

 5 Year DCF for Drive Shack (here)

Note – DCFs are obviously sensitive to inputs so please take this into consideration and check out the model/adjust inputs for a few scenarios. I projected revenue growth at 20% for 2021, 2022, and 2023. Based on these assumptions the fair value price for DS is $7.19

 

Insider Buying and Selling (here)

  • Buying is typically a good sign, whereas selling is a bad sign. initially looking at the 2 sells by insiders might be a bit concerning, but if we look at the total number of shares sold it only represents 2% of the total shares traded. I view this as a positive sign for Drive Shack

 

INSIDER TRADE

3 MONTHS

12 MONTHS

 

Number of Open Market Buys

2

7

 

Number of Sells

0

2

 

Total Insider Trades

2

9

 
       

Number of Insider Shares Traded

     

INSIDER TRADE

3 MONTHS

12 MONTHS

 

Number of Shares Bought

674,305

784,511

98%

Number of Shares Sold

0

19,594

2%

Total Shares Traded

674,305

804,105

 

Net Activity

674,305

764,917

 

 

Recent Timeline of Drive Shack

March 14, 2021 - Drive Shack Jumps 18% As 4Q Earnings Exceed Estimates (here) - analysts expected significantly lower revenue due to COVD but DS was able to beat these estimates

  • Drive Shack's (DS) earnings of $0.13 per share compared favorably with the year-ago period's loss of $0.25 per share. Analysts were expecting a loss of $0.19 per share.

 

Jan 29, 2021 - Drive Shack Inc. Announces Pricing of Public Offering of Common Stock (here) – price dropped to ~$2.40 based on this news, which makes sense when there is a public offering

  • Priced its underwritten public offering of 20,833,334 shares of common stock at a price to the public of $2.40 per share for gross proceeds of approximately $50 million.

 

Jan 26, 2021 - Drive Shack Inc. Announces Collaboration with Professional Golfer Rory McIlroy and its New Indoor Entertainment Golf Experience, Puttery (here) – price popped to ~$3 on this news

  • "I am thrilled to partner with the Drive Shack team on their new entertainment golf experience," said Rory McIlroy. "Once Covid is under control, the ability to combine high-tech mini-golf with a high quality food & beverage menu will make Puttery a great experience for any social gathering. I am personally making a financial investment in the growth of future Puttery venues across the country and can’t wait to debut our first Puttery in Dallas this summer."
  • From my perspective this is a huge partnership and they might be looking to get other golfers on board (John Daly might be a good fit…)

 

Risks

  • Building Costs/Delays – They are banking on opening 2 Puttery locations which will drive significant revenue starting this summer. If there are delays in completing these venues this will impact their cash flow. They have projected the total costs to develop these locations and with any type of construction project there is always the risk of cost overrun
  • Current Ratio is 0.7 - The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. A current ratio of less than one may seem alarming, although different situations can affect the current ratio in a solid company. This might be a bit concerning for DS. Negative revenue through 2020 due to COVID played a role and they are still developing a number of new venues. Something to be aware of, especially if there is a delay in brining the 2 new Puttery venues online.

 

TLDR

  • Pent-up consumer demand will continue to drive spending in the entertainment space, especially social activities outside of the house (bars, restaurants, activities, etc.)
  • Drive Shack provides the perfect combination of social activity, bar/restaurant, and technology
  • They landed a great strategic partnership, are aiming to open 2 new venues in the summer of 2021, if executed properly they can capture the pent-up demand for social entertainment experiences
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read-time
5 min

3.89

Target Price

8/ 10

Confidence

2-6 Months

Timeframe
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Earnings Release
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News
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SEC Filing
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DS Channel

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