The market reacted fondly to DraftKings third quarter results and guidance improvements, with DKNG stock closing Friday up 16.5% to a new 52-week high of $33.75.
DraftKings saw volume of 47.9 million, nearly 4 times its 12.2 million daily average. That ranked fifth for daily NASDAQ volume behind Tesla, Apple, AMD and American Airlines.
The company had $789.9 million in Q3 revenue, 12% ahead of consensus analyst estimates and a 57% increase year-over-year, according to the third quarter report. Adjusted EBITDA losses were $153 million, a 42% improvement from last year.
Growth came as DraftKings reduced marketing, yet kept adding users from new states and retaining users from existing ones:
“It’s really hard to say how much of it is new players coming into the market and us disproportionately acquiring those players relative to competition and then retaining those players, versus truly stealing players from competitors, we don’t really know,” CEO Jason Robins said during the third quarter earnings call Friday.
DraftKings raises year-end targets, stock jumps
The quarterly growth prompted DraftKings to raise its guidance targets for the full year.
Adjusted EBITDA losses are expected to be $105 million at the midpoint of guidance range. That is a $100 million improvement at the midpoint over its last guidance update and $420 million off the midpoint from initial 2023 guidance.
Revenue is forecasted at $3.67 billion to $3.72 billion for the fiscal year, up from previous guidance of $3.46 billion to $3.54 billion. Stronger structural hold accounts for roughly $70 million of the revenue improvement and $50 million of the Adjusted EBITDA improvement, the company said.
DraftKings also initiated 2024 guidance with positive adjusted EBITDA of between $350 million and $450 million expected on between $4.5 billion and $4.8 billion in revenue.
Marketing drops, player spend pops
The company spent $313 million on marketing during the quarter, a 2.7% reduction from Q3 2022 and its first year-over-year reduction.
Monthly unique players increased to 2.3 million in Q3, a 40% jump year over year. Since Q3 last year, DraftKings has added Kentucky, Maryland, Massachusetts and Ohio. In Kentucky, the company has roughly 5% of the adult population as customers.
Average revenue per monthly unique player was $114, a 14% increase year over year. Fueling that rise was a 9.5% hold across sports betting, which the company projects to continue throughout the year.
“We’re seeing customers come in in new states with a higher parlay mix, which increases immediate monetization,” Robins said.
Retention higher than expected
DraftKings said it was first nationally in combined online sports betting and iGaming market share in Q3. Part of that came as the company’s retention of existing customers was slightly higher than expected.
In states where DraftKings launched in 2021 or earlier, external marketing costs are decreasing at “a double-digit rate,” Robins said.
Expect a further decline in external marketing next year, even with today’s launch in Maine, as well as North Carolina and potentially Vermont, Robins added.
How will DraftKings stock react to new product?
The company plans to unveil a new sports betting product during its DraftKings stock Investor Day on November 14, the same day competitor Penn Entertainment is slated to launch its ESPN Bet-branded sportsbook.
Robins hinted at the product during the call after discussing what he views as the duality between giving customers new products that have a bigger edge for the house.
“It kinda fits this double objective of being great for the customer and holding better than the average,” Robins said.
DraftKings hopes product innovation will outweigh ESPN proms
When asked about the upcoming launch of Penn’s ESPN-branded sportsbook, Robins said:
“Certainly, there are people who will go take promos and that’ll happen but in the end, we believe that most customers will gravitate to the best product the best experience. We’re going to stay disciplined and I think it will probably play out in a similar fashion to other times.”