DraftKings’ revenue guidance for the calendar year now sits at $4.85 billion to $4.95 billion, down by around 5% at the midpoint from the prior projections of $5.05 billion to $5.25 billion.
Adjusted EBITDA guidance was cut to a range of $240 million to $280 million. This midpoint of this range represents a 48% decline on the first quarter FY24 guidance of $460 million to $540 million, and DraftKings’ second straight lowering of EBITDA guidance for 2024.
The guidance reduction, DraftKings said, was down to customer-friendly sporting outcomes in the early stages of the fourth quarter. Truist’s Barry Jonas noted cusotmer-friendly NFL results were “the worst in company history”. During the period between October to the week of 4 November this year, DraftKings reported a week with negative hold of -10% to -15%.
This created a revenue headwind of around $250 million, and a $175 million impact on EBITDA he said, though this was partially mitigated by $55 million saved through cost efficiencies and optimising promotional spend.
‘Rounding errors’
Speaking on DraftKings’ earnings call chief executive Jason Robins looked to reassure investors by talking up the operator’s projected EBITDA growth in 2025. Its reiterated FY25 adjusted EBITDA guidance of $900 million to $1.0 billion would make the impact of adverse sporting results less pronounced, he said.
“Next year our adjusted EBITDA is going to double at the top end of our guidance range while revenue will only rise by 31%, so as we scale and the business generates more EBITDA these results are going to be more rounding errors,” Robins explained.
DraftKings introduced new revenue for guidance alongside its Q3 results, projecting revenue in the range of $6.2 billion to $6.5 billion for FY2025, growth of approximately 31% year-over-year.
However Deutsche Bank’s Carlo Santarelli sounded a note of caution. “[DraftKings] reiterated its 2025 guidance, but in the shadow of a 2024 adjusted EBITDA guide that has been cut from a midpoint of $500 million to a midpoint of $260 million over the past six months, we don’t expect investors to simply underwrite the 2025 results anymore,” he wrote in an analyst note yesterday.
DraftKings’ Q3 performance in line with Wall Street estimates
Revenue for the three months ended 30 September grew 38.7% year-on-year to $1.096 billion , coming in below Deutsche Bank’s forecast by around $26 million. However Truist noted this figure was in-line with its estimates, and only marginally below Wall Street consensus.
The operator credited this growth to continued customer engagement and supported by efficient new customer acquisition during the quarter. Topline growth was aided by expansion into new markets – it has launched in Vermont, Washington D.C. and North Carolina this year – as well as improved sportsbook hold percentage and more effective promotional reinvestment for sports and igaming.
Without breaking out figures, online sports betting handle was up 25% year-on-year, according to Truist, with GGR rising 39% from the prior year. iGaming GGR increased 26% from Q3 2024.
DraftKings expanded its product range by acquiring lottery courier business Jackpocket in May, and said its impact helped Q3 topline growth. DraftKings currently does not report on the revenue split between sports, igaming and lottery, though Robins said on the call this will be introduced in 2025 to provide more insight on performance across the verticals.
Early evidence of Jackpocket’s impact
Monthly unique players (MUPs) grew to 3.6 million for the quarter, a 55% year-on-year increase, and this was the clearest sign of Jackpocket’s impact. Excluding players acquired through the lottery app, MUPs would have been up 27% compared to Q3 2024.
However, Jackpocket had a negative impact on average revenue per MUP (ARPMUP), which fell 10% to $103 in Q3. Jackpocket customers have comparatively lower ARPMUP, DraftKings explained, though this was offset by the improved sportsbook hold percentage and more disciplined promotional reinvestment. Excluding the Jackpocket players ARPMUP would have increased 8% year-over-year.
Will DraftKings add predictions to its product roadmap?
In the wake of non-sports predictions markets enjoying a moment in the sun after they proved the biggest winner of this week’s presidential election (after Donald Trump), DraftKings is eyeing up the product, Robins said.
“I think it’s a very interesting thing,” Robins said in response to a question from Goldman Sachs’ Ben Miller.
While elections are the dominant driver of activity currently, there could be scope to launch these games for other contests, he said.
“So [it is] definitely something we’re looking at in advance of next presidential election and potentially there will be an opportunity to look at something sooner,” he said. “It is a different framework. It’s not licensed as a betting product, it’s licensed as financial market. So it’s definitely a very different thing.
“We’ll have to see where it fits in the priority list. But it is something we’ll plan on looking at ahead of next election for sure.”
Moving down DraftKings’ Q3 balance sheet
The operator’s adjusted EBITDA loss of $58.5 million came under Deutsche Bank’s $71 million loss estimate, and beat Wall Street’s consensus by around $10.5 million.
The revenue growth helped mitigate increased costs, with operating loss for the quarter coming to $298.6 million, and net loss for the quarter improved year-on-year, falling from $372.4 million in Q3 2023 to $293.7 million.
“DraftKings delivered strong performance in the third quarter with the return of NFL and college football,” Robins said in a statement released alongside the figures. “With major sports converging on the calendar, we are well-positioned to build on this momentum as we further enhance our top-ranked sportsbook app with additional live betting features and exciting new NBA markets. Our focus remains on driving sustainable revenue growth and profitability in 2025 and beyond.”
What does 2025 and beyond have in store?
With DraftKings predicting continued revenue growth and significant EBITDA improvements for 2025, analysts pressed Robins on where he sees room to grow in the coming year.
For sports betting, he referred the market back to where the industry left off in this session, highlighting Texas, Georgia and Minnesota as states where he hopes to see progress in 2025. Missouri, which passed sports betting legislation via a ballot measure earlier this week, is of course on his agenda for 2025.
Similarly, for icasino, he picked out New York, Illinois, Maryland and North Carolina as prospects for progress.
However Robins was more circumspect on Florida, where Hard Rock International CEO Jim Allen has suggested the Seminole Tribe may be willing to partner commercial operators to bring more brands into the market. Robins said he was “very encouraged” by Allen’s comments, but was clear that those plans were “not that far along”.
Similarly, he says DraftKings doesn’t have a need to expand internationally, though without shutting the door on the prospect entirely. “[We] could be opportunistic as an attractive opportunity arises,” he said.
“We definitely feel very good about where we are from a growth perspective and don’t need to look at those kinds of things,” he added however.
Shares in DraftKings dipped in after-hours trading yesterday in the wake of the FY24 EBITDA downgrade, and are trading down 1.44% at $38.42 per share in New York at the time of writing.
Original article: https://igamingbusiness.com/finance/quarterly-results/draftkings-q3-2024/
