DraftKings Earnings: Parlays, Marketing Steer Revenue Beat With Guidance Raised Again

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Parlays and marketing efficiencies helped DraftKings exceed quarterly financial expectations and raise its outlook for the full year.

DraftKings reported $1.174 billion of revenue in Q1, beating Wall Street estimates of $1.12 billion and up 53% year-over-year. Adjusted EBITDA was $22.4 million, surpassing consensus estimates of $5 million, and a 110% improvement year-over-year.

While a historically bad quarter of sporting outcomes resulted in lower-than-expected metrics for competitors, DraftKings exceeded expectations through higher holds and improved customer metrics, CEO Jason Robins said on the company’s earnings call Friday morning.

Stock market reception mixed

The strong quarter prompted DraftKings to raise guidance midpoints for 2024 to $4.9 billion in revenue, up from its previous $4.78 million target, and $500 million in adjusted EBITDA, up from $460 million.

DKNG stock closed Friday day at $41.81 a share, down 2.84% from Thursday’s close on double its average volume of 10.7 million.

Parlays neutralize unfavorable sports outcomes

Robins said DraftKings took more parlays as a percentage of total bets than it anticipated, resulting in a higher hold despite the historic run of favorites winning during the quarter. Handle was also “higher than expected,” though he did not divulge specific figures.

DraftKings sports betting hold was roughly 9.5% in Q1, up 1.5 percentage points year-over-year. The company is targeting 10.5% for the entire year.

“It’s really a function of some of the product enhancements we’ve made in what we’re seeing that due to our Parley mix and average leg count,” Robins said. “Progressive parlay as an example, is a much higher average leg count than a typical parlay. So that’s been one of the many examples of contributors. We also are right now in the process of rolling out across states cash out for SGP, which is another lever, I think.”

Higher-than-expected hold added $20 million in revenue and $14 million in adjusted EBITDA, while unfavorable sports outcomes negatively impacted revenue by $60 million and adjusted EBITDA by $42 million.

DraftKings competition stifled by tough quarter

Caesars, by comparison, reported a 6.7% hold earlier this week and ESPN Bet a 4.4% hold, which both companies attributed to unfavorable spots outcomes. Flutter, the parent company of DraftKings’ chief competitor FanDuel reports quarterly earnings in a few weeks.

Addressing ESPN Bet, on Penn’s earnings call earlier this week, CEO Jay Snowden said the app was trailing behind DraftKings and FanDuel in hold because they take more parlays.

Parlays accounted for 56% of all bets DraftKings took in Illinois from January to February, trailing only FanDuel (65%), per LSR analyst Eric Ramsey.

DraftKings optimizes customers

Stronger customer acquisition, retention and engagement translated into $165 million in revenue and $68 million in adjusted EBITDA.

DraftKings had 3.4 million average monthly unique paying customers in Q1, up 23% year-over-year, but down roughly 100,000 from Q4, which Robins chalked up to “just seasonality.” Average revenue per customer was $114, $22 higher year-over-year but down $2 from Q4.

It reported 7.5 million unique customers for the quarter, a metric that’s risen an average of 9.8% every quarter since Q3 2020.

“This last sort of quarter and particularly in April, it’s been customer acquisition, for sure, which I think was true for Q4 and Q1, but I also – I’ve seen significant increases to [lifetime values] made over that period of time, too. Our player activity and retention levels have been higher than ever,” Robins said. “As we improve the product and also as we just get more data and continue to do the analysis, continue to optimize, continue to build better tools that allow the teams to trade and also tools on the marketing side that allow the teams to get data to optimize the marketing better. Same thing with promos.”

Promos, sales, marketing continue dropoff

Sales and marketing declined 11% year-over-year, in line with what DraftKings had guided, and a metric Robins advised will continue to decline with no state launches on the horizon.

The company’s promotional costs were down roughly 7 percentage points from Q1 last year when it launched in Ohio and Massachusetts.

DraftKings did launch in North Carolina and Vermont this past quarter, the former of which Robins said should contribute positively to the company’s bottom line by the back half of the year.