DraftKings Inc. (DKNG) Earnings

Management highlights

- First quarter results exceeded expectations, with revenue up 17% and adjusted EBITDA up 64%. - Predictions is a strategic priority, with significant investment planned to improve offering, build liquidity, and scale customer acquisition. Predictions customer acquisition cost declined by over 80% in April, and volume is growing. - Sportsbook business remains strong with revenue growth across major sports, adjusted gross margins increased by nearly 200 basis points, and adjusted operating expenses increased slightly excluding investments in predictions and Arkansas Sportsbook launch. - AI-first execution and streamlined teams are driving higher productivity. - Reaffirming fiscal year 2026 revenue guidance of $6.5 billion to $6.9 billion and adjusted EBITDA guidance of $700 million to $900 million, including significant investment in predictions.

Guidance

- Reaffirming fiscal year 2026 revenue of $6.5 billion to $6.9 billion and adjusted EBITDA of $700 million to $900 million. - Adjusted EBITDA guidance includes significant investment in predictions. - April revenue was up 22% year over year, Handel was up 6% in soft closing April, and World Cup is expected to be a boon.

Segment performance

In the first quarter, revenue increased 17% year over year to surpass $1.6 billion. Adjusted EBITDA increased 64% year over year to $168 million. Sportsbook revenue increased 24% year-over-year to $1.1 billion, with a net revenue margin increase of 140 basis points to 7.8%. Parlay handle mix increased by nearly 300 basis points. Predictions customer acquisition cost declined by more than 80% in April, with annualized predictions consumer volume exceeding $1 billion and annualized total volume traded exceeding $2.3 billion in April, increases of 38% and 43% month over month respectively. Market making is generating a positive return and proprietary exchange and combos are set to launch in coming weeks.

Risks & headwinds

- Early third-party data suggests predictions customers are experiencing losses more quickly than sportsbook customers, highlighting the importance of trust, consumer protections, and operator discipline. - Regulatory changes or other unforeseen events could impact predictions market and legalization efforts. - Investment in predictions may not yield expected results if customer acquisition or market dynamics change.

Analyst Q&A

• Q: About guidance, asked if investment spending in prediction market is coming down and layering of prediction market spend;

  A: Thinking of investing about 200 - 300 million in predictions this year, with a lot in marketing and product technology.

• Q: About Handel exit rate into 2Q;

  A: Handel was up 6% in soft closing April, April revenue up 22% year over year, over $100 million in adjusted EBIT in April.

• Q: About core business product enhancement;

  A: Still has lot to do to improve offering, has product roadmap, opportunity in iGaming with team beefed up, and lots of room left in untapped legal sports betting and iGaming markets.

• Q: About core business moving forward;

  A: Focus on product enhancement, interface improvements, iGaming growth, and legalization.

• Q: About core business promotional effectiveness;

  A: Stable competitive environment, data-oriented, hold rates and parlay mix increasing, lots of runway for parlay mix growth.

• Q: About customer growth and month growth;

  A: Total customer numbers small, focus on growing MUPS and predictions with entire country open and early predictions data showing exciting customer acquisition and CAC.

• Q: About cadence and advocacy spend;

  A: Core business expected to have similar quarterly cadence, advocacy spend not prediction related, was experimenting with super PAC.

• Q: About prediction customer LTVs and take rates;

  A: Early, hard to say, but prediction customers similar to sports betting customers demographically and spend patterns, college basketball heavier on prediction side.

• Q: About core business payment costs;

  A: Super app could provide payment savings via increased retention, payment costs have been coming down through internal changes and rate renegotiation, expecting to decrease payment costs in 2026 and beyond.

• Q: About market making and prediction markets;

  A: Market makers profitable, market making will involve third-party platforms, proprietary exchange launching, data-driven to manage risk.

• Q: About legalization outlook;

  A: Prediction markets helping sports legalization, iGaming momentum in DMV area, Washington D.C., Virginia, Maryland, expecting regional momentum.

• Q: About sport outcome hold impact;

  A: Slightly positive on sport outcomes in Q1, very minor.

• Q: About prediction markets profitability layers;

  A: Market maker profitable already, consumer-facing side will have customer acquisition investment, exchange will be product investment.

• Q: About World Cup expectations;

  A: High expectations for customer acquisition and engagement, launching Spanish language functionality, following data.

• Q: About NBA share gains and partnerships;

  A: NBA had record viewership, being partner important, proud to be partner.

• Q: About core profitability and marketing pullback;

  A: Core profitability strong, marketing spend on core likely to decline as prediction spend ramps, strong top line growth.

• Q: About prediction market consumer loss rate;

  A: Prediction customers losing more quickly, some competitors not managing ecosystem responsibly, need to protect ecosystem.

• Q: About marketing partnerships and predictions promotion;

  A: National partnerships for unified platform, less about predicting promotion, more about unified message.

• Q: About online casino growth deceleration;

  A: Online casino growth stepped down, changes made on product and marketing side, focusing on iCasino first player, launched Flex Spins.