DraftKings Inc. Q3 FY2024 earnings call

• Core value drivers: Acquired more online sportsbook and iGaming customers year-over-year with CAC down nearly 20%, structural sportsbook hold percentage increased, NFL parlay mix up over 500 basis points year-over-year, and promotional reinvestment rate improved by 300 basis points. - Product improvements: Launched new and exclusive NBA markets, expanded in-house same game parlay offering to over 50 new NBA markets. - Recognition: Ranked number one overall sportsbook app in the U.S., first in user experience, betting interface, and features; apps ranked number one in sportsbook and numbers one and two in iGaming. - Missouri initiative: Missouri voters passed a ballot initiative legalizing online sports betting, and DraftKings expects to launch its sportsbook product in the state pending approvals. - Financials: Third quarter revenue grew 39% to $1.95 million, adjusted EBITDA loss was $59 million. Revised fiscal year 2024 guidance: revenues $4.85 billion to $4.95 billion, adjusted EBITDA $240 million to $280 million. Introduced fiscal year 2025 guidance: adjusted EBITDA $900 million to $1 billion, revenue $6.2 billion to $6.6 billion (31% year-over-year growth midpoint), structural sportsbook hold percentage 11%, adjusted gross margin 45%-47%, stock-based comp ~6% of revenue, free cash flow ~$850 million.

In the third quarter, online sportsbook gross gaming revenue increased 39% year-over-year, and iGaming gross gaming revenue grew 26%. Newly acquired online sportsbook and iGaming customers rose 14% year-over-year, while customer acquisition cost (CAC) for these customers improved nearly 20%. Structural sportsbook hold percentages increased, and adjusted gross margin was 40%, a 300 basis point year-over-year improvement. Online sportsbook and iGaming promotional reinvestment rates improved by 300 basis points year-over-year.

• Fiscal year 2025 adjusted EBITDA is expected to be in the range of $900 million to $1 billion. - Introduced fiscal year 2025 revenue guidance of $6.2 billion to $6.6 billion, representing 27% to 35% year-over-year growth compared to the updated fiscal year 2024 revenue guidance midpoint. - Expect structural sportsbook hold percentage of 11% in fiscal year 2025 with further upside in subsequent years. - Fiscal year 2025 adjusted gross margin is expected to be in the range of 45% to 47%. - Stock-based compensation expense is expected to represent approximately 6% of revenue in fiscal year 2025. - Expect the bridge between adjusted EBITDA and free cash flow to be $100 million, resulting in free cash flow of approximately $850 million in fiscal year 2025.

• Sport outcomes can pressure revenue and adjusted EBITDA in the short-term. - Uncertainty in customer acquisition promotions affecting flow through assumptions. - Competitive landscape in the iGaming segment. - Regulatory uncertainties in new markets where DraftKings may expand.

Q: Ben Miller asked about non-sports betting prediction markets.

A: Jason Robins said it's an interesting area, particularly election markets, and they are looking at it ahead of the next presidential election, noting it's a different framework from sports betting.

Q: Stephen Grambling asked about drivers of parlay mix increase and carryover to other sports.

A: Jason Robins said it's due to product improvements like new features, merchandising, and player prop combinations, with early signs of carryover in NBA and plans for baseball too.

Q: Benjamin Chaiken asked about estimating the impact of October sport outcomes on hold.

A: Jason Robins agreed with the rough math on the impact of October outcomes on hold.

Q: Clark Lampen asked about structural hold rate expectations and micro-betting.

A: Jason Robins said the 11% hold rate is a committed number based on current confidence, and micro-betting with Simple Bet will help in live betting and differentiating on the live betting side.

Q: Joe Stauff asked about retention levels in OSB vs. casino customers.

A: Jason Robins said retention is not too different, with iGaming being competitive but DraftKings' products ranked highly.

Q: Dan Politzer asked about future revenue growth beyond 2025 and sales/marketing deal roll-offs.

A: Jason Robins said there's upside as the industry grows faster than expected in previous projections, and sales/marketing deals rolling off is an opportunity for improved flow through.

Q: Brandt Montour asked about hold percentage lift drivers and reaching higher rates.

A: Jason Robins said it's mix-driven, with potential to reach higher rates through continued parlay mix improvements in different sports.

Q: Jed Kelly asked about iGaming promotional velocity and King of the Court promotion.

A: Jason Robins said iGaming promotional velocity is steady year-over-year, and the King of the Court promotion was a success with learnings for future promotions.

Q: Barry Jonas asked about next states for OSB/iGaming and thoughts on Florida.

A: Jason Robins mentioned states like Texas, Georgia, Minnesota, New York, Illinois, Maryland, North Carolina, and was encouraged by Florida comments but noted it's early stage.

Q: Bernie McTernan asked about free cash flow use and hold disaggregation.

A: Jason Robins said free cash flow will be used responsibly, likely with more share repurchases as liquidity increases, and hold is a mix of team outcomes and player props.

Q: Michael Graham asked about customer reactivation strategies.

A: Jason Robins said they use CRM treatments and event-driven activation, like NFL season start, to reactivate customers.

Q: Chad Beynon asked about international expansion.

A: Jason Robins said international expansion is opportunistic, not a need currently, but open to opportunities if right.