DraftKings has a new focus on profitability and efficiency in its operations, including recent job cuts, and investors reacted well to the overall picture.
DKNG was up more than 15% when the conference call ended around market opening Friday morning. By 9:40 am Eastern, volume was already at more than 14 million, up from its 12.9 million average daily volume.
The improved focus led to better-than-expected Q4 results and guidance for 2023, both of which were market pleasers. It also likely helped that DraftKings posted a letter to shareholders and its Q4 report Thursday evening, giving investors more time to digest the news.
DraftKings reported it would have been EBITDA-positive in the fourth quarter if not for costs related to Maryland and Ohio launches, which is another catalyst the market anticipated.
What is DraftKings guiding for 2023?
DraftKings identified about $100 million in positive adjusted EBITDA contribution for this year through its expense management program. There should be savings on labor, too, after DraftKings cut 3.5% of its workforce.
That means adjusted EBITDA loss is now expected to be between $350 million and $450 million for the full year. That is up from the previous loss range of $475 million and $575 million announced Nov. 4.
DraftKings now expects a $100 million improvement in both external marketing efficiency, and lower compensation and related expenses with $50 million coming from each. There is also another $25 million expected from better customer retention and monetization.
Revenue should be between $2.85 billion and $3.05 billion. That would represent growth of 27% to 36% over 2022.
More details about DraftKings’ future performance will come at an investor day this year, CEO Jason Robins said on the company’s earnings call. He did share, however, that the first positive adjusted EBITDA quarter of $100 million should be in the fourth quarter of 2023.
Higher hold not losing customers yet
Online sports betting hold for 2022 was 7.7%, a 1.2 percentage point increase over 2021’s 6.5%.
That improvement came in three areas:
- Higher parlay handle mix and parlay average leg count: 0.7 percentage points
- Optimized trading: 0.3 percentage points
- Sport outcomes: 0.2 percentage points
Parlay mix factors in
Customers getting a lower return on average than the previous year has not hurt retention, Robins said. They appear to like the improvements DraftKings made to its parlay product mix, which drives higher hold and improves retention at the same time.
Two key performance indicators prove Robins’ point:
- Average revenue per monthly unique players grew 41.6% to $109 in the fourth quarter
- Average monthly uniques jumped 30% to 2.6 million
No update on potential Disney deal
Bloomberg reported in October that Disney and DraftKings would enter into a “large new partnership.” There have been few details shared about what that might look like, though, and Robins did not offer any clarifications on the call.
“No, we’ve continued to have a great relationship with Disney,” Robins said. “ESPN, Jimmy PItaro and his team have been great partners. We’ve really enjoyed that relationship, gotten a lot out of the partnership.
“We always talk to our partners about ways that we can improve and expand our relationship and Disney and ESPN have been a great partner thus far.”
Still seeing growth in maturing markets
DraftKings is still finding new customers from states launched in 2018-19, Robins said.
Revenue from those most mature states grew 50% compared to last year. CFO Jason Park said around 70% of that growth came from existing customers with the rest from new customers. According to the investor presentation, those states saw a 4 percentage point increase in adjusted gross margin and a more than 15% drop in external marketing.
Robins said global comparisons show growth continues for decades, albeit at a diminishing return. Still, he expects to see “pretty steady growth” for another decade or so.
That growth is not just for sports betting. DraftKings ranked first in New Jersey iGaming market share in January for the first time ever despite launching in December 2018.
2022 DraftKings results
DraftKings reported $855.1 million in fourth-quarter revenue, which jumped 80.7% over 2021. The company had $2.2 billion in revenue for the full year, up 86.9% from the $1.3 billion reported for all of 2021.
Revenue was not the only segment to grow, though. Sales and marketing for 2022 eclipsed nine figures at $1.2 billion, up 20.8% from 2021. That includes an increase of 24% in the fourth quarter for sales and marketing costs, which hit $345.3 million.
The adjusted EBITDA loss for the fourth quarter, though, was $49.9 million, a significant improvement from last year’s loss of $128 million. When stripping out costs for Maryland and Ohio, though, adjusted EBITDA was $25 million.
Still, adjusted EBITDA loss grew over the full year by 6.8% to $721.8 million.