DraftKings is still on the path toward profitability after recording another net loss and adjusted EBITDA loss period in the third quarter of 2022.
Despite a “very strong” Q3, which saw its revenues improve by 136% year-over-year, the operator still reported a net loss, but it has altered its revenue and adjusted EBITDA guidance for the 2022 fiscal year to reflect the YoY improvements.
Speaking on DraftKings’ Q3 earnings call, CEO Jason Robins noted that the operator is working toward having a positive adjusted EBITDA by 2024 “assuming legalization and launch trends remain consistent with prior years”.
CFO Jason Parks stated: “Looking out to 2024, we would expect adjusted EBITDA to be roughly breakeven on a four-year basis under most reasonable legalization and launch scenarios.
“In summary, we believe we are well capitalized to become a free cash flow positive with existing resources, and the business is on a clear path to achieve our long-term gross margin and EBITDA margin targets.”
Robins added: “We had an excellent third quarter, really excited about our performance and we feel we’re really well positioned for a very strong finish to 2022, and really well set up for 2023 going into 2024, which we expect to be roughly breakeven, potentially of our first full profitable year, and then Q4 2023, which we expect to be our first quarter of positive adjusted EBITA.
“Very excited about the future. Only one year away we think from our first positive adjusted EBITDA quarter.”
DraftKings Q3 financials
For Q3, DraftKings declared an overall revenue of $502m, 136% higher than the same period last year (Q3 2021: $213m) thanks to “healthy customer engagement and retention, favorable sport outcomes, and reduced promotional intensity”.
Its B2C segment reported $493m, improving by 161% YoY, as the operator saw high hold rates largely from NFL wagering and launched its sportsbook and igaming products in several new jurisdictions since the end of Q3 2021, including an online sportsbook in Kansas on September 1.
Monthly unique payers (MUPs) increased by 22% YoY to 1.6 million in Q3, reflecting “strong unique payer retention and acquisition” across products and new jurisdictions entries which offset a decline in daily fantasy sports MUPs.
Average Revenue per MUP (ARPMUP) came in at $100, a 114% increase YoY “due to a continued mix shift into DraftKings’ sportsbook and igaming products, atypically high sportsbook hold rates largely from NFL wagering and reduced promotional intensity”.
DraftKings reported an adjusted EBITDA loss for Q3 of $264m, a 15% improvement YoY (2021: $314m), but the operator still declared a net loss of $450m, up 17% YoY (2021: $545m).
Robins said: “DraftKings had a very strong third quarter. Our team continued to drive top-line growth through highly effective customer engagement and compelling product and technology enhancements while remaining focused on our path to profitability.”
The CEO noted that DraftKings continued to make investments into its mobile sportsbook for the NFL season, “creating a differentiated and fun customer experience,” while also realizing the “unique marketing optimization benefits as an operator with truly national scale” to drive customer acquisition, engagement, and retention.
This differentiated NFL product included head-to-head matchups, new multi-player prop and player flash markets, full-time and anytime squares for every game of the season, early payout for moneyline wagers, quick parlay and quick same-game parlay, and the ability for users to combine multiple same game parlays.
The operator was also selected by Amazon as a sponsor and official pre-game odds provider for Thursday Night Football (TNF) on Prime Video. The agreement included DraftKings integrations in TNF live pregame and the collaboration on TNF-themed offerings, including same-game parlays,
DraftKings’ sportsbook is now live in 18 US states plus Ontario, while its igaming offering is operational in five states as well as the previously mentioned Canadian province.
The operator has plans to launch its mobile sports betting in the jurisdictions of Maryland, Puerto Rico, Ohio, and Massachusetts in the next year.
Following its performance in Q3, DraftKings has altered its revenue and adjusted EBITDA guidance for the rest of the fiscal year to reflect the YoY growth, as it expects to achieve a positive adjusted EBITDA by 2024.
The operator has raised its FY22 revenue guidance to a range of $2.16bn to $2.19bn (previously announced as $2.08bn to $2.18bn at the end of Q2), and its adjusted EBITDA loss between $800m and $780m (previously announced as $835m and $765m at the end of Q2).
Previous adjusted EBITDA guidance did not include “the impact of the company’s launch in Kansas”, as well as “the anticipated impact in the fourth quarter of 2022 related to reasonably foreseeable state launches, such as the company’s expected launches in Maryland and Ohio, pending licensure and regulatory approvals”.
DraftKings has also stated its FY23 revenue guidance is in the range of $2.8bn to $3bn, while its FY23 adjusted EBITDA guidance is a loss of between $575m and $475m. These guidances take into account the expected mobile sports betting in Maryland in Q4, in Ohio and Massachusetts in Q1 2023, and Puerto Rico in Q3 2023.
Park noted: “Our results in the third quarter significantly exceeded the expectations that we provided on our second-quarter earnings conference call.
“We are increasing the midpoint of our fiscal year 2022 revenue guidance by $45m and improving the midpoint of our fiscal year 2022 adjusted EBITDA guidance by $10m, which is a meaningful improvement given our prior fiscal year 2022 adjusted EBITDA guidance did not include our launch in Kansas on September 1, 2022, or fourth quarter investments ahead of our expected launches in Maryland and Ohio, pending licensure and regulatory approvals.
“We are also introducing 2023 guidance for revenue and adjusted EBITDA which reflects our continued balance between driving attractive revenue growth and meaningfully improving our adjusted EBITDA.”
Robins added: “Throughout 2022, we’ve struck the right balance between delivering differentiated top-line growth and driving operating efficiencies. We continue to be confident that we will achieve positive adjusted EBITDA in the fourth quarter of 2023 based on the visibility we have into expected state launches.”