DraftKings aiming for profitability in 2024 following ‘surgical’ decisions in 2022

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DraftKings CEO Jason Robins has praised the ‘surgical decisions’ that the company has made during Q4 of 2022 and has revealed that the operator expects its first positive adjusted EBITDA year in FY 2024. 

Publishing its Q4 financial report, DraftKings declared revenues of $855.1m, up 81% year-over-year, something that leadership attributed to three key areas: new state launches, higher structural hold rate and less customer reliance on promotions.

As DraftKings placed ‘more focus on cost control than ever before’, its adjusted EBITDA reduced from $128.0m in Q421 to $49.9m in Q422.

DraftKings improving operational efficiencies

Within its financial report, DraftKings detailed it anticipates its first positive EBITDA quarter in Q4 of 2023, with a fully positive adjusted EBITDA for FY24. Robins explained that this is due to the complete alignment of all leadership on improving the operational efficiency and the work done over the last year to cut on needless costs. 

He told investors this morning: “We’re all cognizant of the market environment we’re in. But we also understand that to build the most profitable long-term company, we need to be as efficient as we possibly can. So that there was an equivalent focus on EBITA and profitability to what we previously had on revenue. 

“When we look at the long term, and we’ll provide more specific updates later this year, I do think there’s some upside if we can continue to find the efficiencies that we’ve been finding over the past 12 months.”

It was also revealed that Q4 of 2022 would have been an adjusted EBITDA positive quarter, save for its $75m investment in Maryland and Ohio. He also noted October was an adjusted EBITDA-positive month for DraftKings. 

A major factor in DraftKings’ much-improved revenue performance in Q4 was the improvements made in its structural hold, with the improvements attributed to higher parlay handle mix, parlay average leg count and optimized trading. 

Robins explained that continuing to offer enticing parlay bets to players will also help to improve its retention rate as many US state markets begin to mature. 

Asked whether he worried about customer churn as hold rates improve, Robins detailed: “What’s nice about the parlay product is customers love it. It’s something that I think helps with retention if the product offering keeps getting stronger. 

“So we don’t view it as a trade-off at all, we look at it as starting with the customer finding the products that the customers want. Then, ideally, we construct those products in a way that is both really exciting and benefits the customer and also creates attractive economics for the company.”

Many observers have been concerned about the amount of marketing spending that DraftKings has been happy to make in recent years, but the CEO was eager to assert that marketing spend will be reduced. 

Whilst admitting that 2023 spending is expected to be flat based on the cadence of state launches, Robins noted that sponsorship deals with sports teams and leagues could come to an end when those deals expire. 

DraftKings has deals with teams in the NBA, NFL and UFC, but Robins hinted that some of those deals will not be renewed upon expiry to reduce marketing expenditure. 

“We feel there’s room there (to cut costs),” Robins told investors this morning.  “We’ve had a number of partners that have been very constructive and they’ve agreed to reductions that would make these deals efficient in the way that we need them to be. 

“There are others that we will be discontinuing when the deals come up and have discontinued as they’ve come up over the past year. So it’s really been a mix.”

New York igaming plans

DraftKings leadership was asked about the prospects of igaming becoming legal in New York this year, given Sen Addabbo’s efforts in the Senate. 

Whilst DraftKings appealed to the legislators to introduce igaming in New York, Robins remains doubtful of a launch this year. Instead, he is more hopeful about online casinos in 2024, a perspective that has been built into the 2024 guidance. 

He did, however, note that should NY launch igaming, DraftKings would be in a strong position to capitalize, given the ‘hundreds of thousands of customers it had acquired via online sports betting in the last 13 months. 

“We’ve acquired hundreds of thousands of players in New York already, I think the cross-sell opportunity there will be enormous. 

“We know that some of these players are going to Connecticut to New Jersey, to Pennsylvania to do igaming now. So I do think there is some incremental customer acquisition spend but it’s not the same as the fresh market.”

Closer ties with Disney? 

Another key talking point in the call was DraftKings’ relationship with ESPN and Disney now that Bob Iger is back at the helm of the international entertainment company. 

The last few months have seen increased reporting on closer ties between DraftKings and ESPN, which have had a multi-year deal in 2020. 

Though nothing was confirmed, Robins explained that there is always room for talks with their partners for further close ties. 

“We’ve continued to have a great relationship with Disney. ESPN, Jimmy Pitaro, and his team have been great partners. So we’ve really enjoyed that relationship and gotten a lot out of the partnership. 

“We always talk to our partners about ways that we can improve and extend and grow the relationship and Disney and ESPN have been great partners thus far.”

More figures and 2023 outlook 

In a further examination of DraftKings’ Q4 2022 figures, the operator detailed its monthly unique players had increased to 2.6 million, up 31% YoY thanks to strong player retention. 

Its Average Revenue per MUP was $109 in the fourth quarter of 2022, representing a 42% uptick YoY. 

For the full year of 2022, the operator’s revenue stood at $2.24bn, up from $1.3bn in FY21, owing to some of the factors elaborated on previously. 

Despite the optimistic outlook, full-year adjusted EBITDA losses did grow from negative $676.1m in 2021 to negative $721.8m in 2022, with the cost of revenues swelling to $1.48bn from $794.1m in 2021. 

CFO Jason Park pulled back the curtain a little on some of the figures, telling investors: “Revenue was better than our prior guidance primarily because of structural improvement in reports for hold and fundamentally better customer trends but to be expected, customers are engaging more with our products and are less reliant on promotions.”

Nevertheless, DraftKings anticipates progress toward profitability throughout 2023 to lead to a fully profitable year in 2024. 

In terms of the 2023 outlook, revenue is projected to be at around $2.85bn – $3.05bn, up from $2.8bn – $3.0bn. Meanwhile, adjusted EBITDA is expected to be negative $350m and negative $450m, improved from the anticipated $475m and negative $575m initially projected. 

On the 2023 projections, Park added: “Strong customer trends including customer retention, handle per player, hold rate, and better promotion reinvestment are enabling us to increase the midpoint of our revenue guidance from $2.9bn to $2.95bn. 

“And our expense management programs have already identified $100m of cost savings for 2023 – roughly $50m from marketing efficiencies and another $50 from people-related costs. 

“These two factors along with our higher revenue outlook allow us to confidently increase our adjusted EBIT and our guidance range from negative $475m to negative $575m to negative 350 to negative $450m.”