DraftKings is inching towards its profitability goal as it continues to find more customers and achieve more profit from them while cutting marketing and promotions.
DKNG was up more than 16% after a Q1 earnings call Friday, which revealed better-than-expected results for the second straight quarter. The stock closed at $24.58 Friday, up 15.3% for a new 52-week high, with volumes more than 2.5 times its average of 13.3 million. While well off its all-time high, that price represents a rebound from a dip toward $10 last year.
DraftKings expects adjusted EBITDA losses to be between $290 million and $350 million for the full year. That is up from the previous loss range of $350 million to $450 million from February, and the $475 million to $575 million range forecasted in November.
DraftKings is on track to break even on adjusted EBITDA in Q2 and to be $150 million EBITDA-positive in Q4, CEO Jason Robins said. The company also went through a sizable workforce reduction announced before Q4 2022 results.
Efficient launches, new expectations
DraftKings grew its total users by 57% while cutting customer acquisition costs by 27% year-over-year in Q1 – a rare correlation in any industry, Robins pointed out.
Much of that came from new state launches in Ohio, Maryland and Massachusetts, where DraftKings accounted for 37% of all dollars bet. In its home state, the Boston-based company is the early market share leader.
“What used to be a 2-3 year timing for profitability is being pulled in, and also, we think there will be more revenue contribution from those new states as well. It’s absolutely a driver of the increased revenue forecast,” Robins said.
DraftKings ad saturation smooths new states
Robins noted promotions and advertising were less of a priority in new launches than in years past because of their timing with the sports calendar and DraftKings’ national presence.
“You’re seeing gate effects of national advertising in Ohio, Maryland and Massachusetts. A lot of that quick ramp was at least in part a result of a switch to national advertising,” Robins said. “In Ohio and Massachusetts, they saw our advertising all year long during NFL season.”
Growth in existing markets
DraftKings accounted for 32% of national sports betting handle, a 4 percentage point increase year-over-year, and grew handle 25% in states where it launched between 2018 and 2021. At the same time, it lowered external marketing spend by 10%.
DraftKings is live with online sports betting in 21 states and iGaming in five states. Pending licensure and regulatory approvals, it expects to launch sports betting in Kentucky and Puerto Rico by next year, which would bring its sportsbook product to roughly 46% of the national population.
It was able to get more out of existing customers as well, increasing monthly unique players (MUP) by 39% year-over-year while increasing revenue per MUP by 37%. DraftKings also passed BetMGM in iGaming revenue in Q1, holding an industry-leading 26% of gross gaming revenue across its five states during the quarter.
It feels like September
The national growth is somewhat surprising, given that sportsbooks typically have their best months during NFL season. Robins credited it to product enhancements, fewer promos, better sports outcomes and a continued rise in parlay betting.
“Last year, we saw a bigger drop off after the NFL season ended with the Super Bowl,” Robins said. “This year due to some CRM optimization, some enhancements on the product, on the sports betting as well as iGaming, we’re seeing much stronger retention following into March and it seems to be flowing into Q2 as well.”
Parlays as a percentage of handle increased by 4 percentage points year-over-year, with the average leg count increasing by 10%. Some notable product launches included:
- Live MLB Same-Game-Parlays
- DK Horse, its first-ever horse racing product, live in a dozen states.
- DraftKings Network, a 24/7 betting-centric stream
Out on M+A – for now
The results are encouraging enough to keep DraftKings’ focus away from potential business opportunities, for now.
PointsBet is in “advanced talks” to sell its North American sports betting and iGaming business, per remarks from CEO Sam Swanell in a recent earnings call.
Following mergers and acquisitions with Golden Nugget and SBTech, DraftKings has spent billions on new customer bases and the technology to vertically integrate its sportsbook, but Robins’s comments Friday would seem to eliminate it from contention for PointsBet.
“Right now, it’s not really a focus of ours,” Robins said when asked about mergers and acquisitions. “We feel like we’ve had really strong organic growth where we’ve been executing very well competitively. We’re seeing natural consolidation of market share happen in the US. Right now that’s our focus. It doesn’t mean that down the road M&A couldn’t become more interesting but at the moment we’re very focussed on execution.”
