DraftKings Inc. Q1 FY2025 earnings call

• Jason Robins noted the company had a strong start to the year, with core value drivers outperforming expectations. Sports book handle was strong, but customer-friendly sport outcomes in March impacted guidance. - Alan Ellingson reviewed first quarter financials, including revenue of $1.409 billion and adjusted EBITDA of $103 million. He discussed fiscal year 2025 guidance revisions, with revenue now expected to be $6.2 billion to $6.4 billion and adjusted EBITDA $800 million to $900 million. - Mentioned continued improvement in core value drivers like structural sports book hold percentage and promotional efficiency, despite headwinds from customer-friendly sports outcomes and tax rate changes.

In the first quarter, DraftKings generated $1.409 billion of revenue, representing 20% year-over-year growth, and $103 million of adjusted EBITDA. Sports book handle increased 15% year-over-year to $13.9 billion. Structural sports book hold percentage was 10.4%, outperforming expectations, while actual sports book hold percentage was 9.5%. Adjusted gross margin increased more than 100 basis points year-over-year to 45%. Revenue contribution from various segments was not explicitly broken down beyond the overall figures.

• Revised fiscal year 2025 revenue guidance to $6.2 billion to $6.4 billion and adjusted EBITDA to $800 million to $900 million, noting customer-friendly outcomes in March were a headwind. - Expect sports book net revenue margin of 7% to 7.5%, adjusted gross margin to be 46%, stock-based compensation expense to be 6% of revenue, and free cash flow of about $750 million. - Second quarter expected to have revenues increase approximately 25% year-over-year and adjusted EBITDA exceed $200 million.

• Customer-friendly sport outcomes impacting revenue and adjusted EBITDA. - Macro-economic factors affecting advertising spend and efficiency. - Tax rate increases in states like Maryland and Illinois, with potential impact on market share. - Jackpocket shutting down digital lottery courier operations in Texas and New Mexico, impacting revenue.

Q: David Katz asked about M&A boundaries, including use of equity, tolerance for leverage, etc.

A: Jason Robins said M&A is part of creating value for shareholders, citing past acquisitions like SimpleBet, Sports IQ, and Mustard Golf as examples of good use of capital.

Q: Shaun Kelley asked about handle growth deceleration and iGaming growth.

A: Jason Robins said handle growth had a slowdown in April but still strong, and iGaming saw improved growth in April with changes in product, marketing, and promotion deployment.

Q: Stephen Grambling asked about promotions as a percentage of handle.

A: Jason Robins said promotions as a percentage of handle would decline as structural hold rises and new users become a smaller part of the pool.

Q: Robin Farley asked about market share in basketball and handle growth rates in mature states.

A: Jason Robins said DraftKings gained market share in basketball due to live betting, and handle growth in mature states is part of multiple metrics driving contribution profit.

Q: Ben Miller asked about handle acceleration vs MUPs deceleration and prediction markets.

A: Jason Robins said handle acceleration was due to live betting, and prediction markets are being discussed by legislators but no states have acted yet.

Q: Brandt Montour asked about structural hold in the second half and parlay mix.

A: Jason Robins said structural hold should be a little north of 11% in the back half, driven by NFL and NBA.

Q: Jordan Bender asked about M&A for international expansion and hold growth.

A: Jason Robins said international expansion is considered but focus is on U.S., and hold growth is expected in the back half.

Q: Joe Stauff asked about live betting product impact and Jackpocket users.

A: Jason Robins said live betting impact started materializing in the past quarter, and Jackpocket users are in non-OSB states with uncertain path in Texas.

Q: Robert Fishman asked about ad efficiencies and tax mitigation.

A: Jason Robins said ad efficiencies seen on digital side, and taxes increase can lead to alternate options gaining share.

Q: Jed Kelly asked about live betting hold and R&D.

A: Jason Robins said live betting hold depends on type, and R&D is driven by recent acquisitions with product improvements in NBA and others.

Q: Clark Lampen asked about structural hold drivers and AI integration.

A: Jason Robins said structural hold is driven by new and existing customers, and AI is in early stages of integration for pricing and risk management.

Q: Steven Sheeckutz asked about DraftKings+ in New York.

A: Jason Robins said initial launch was limited but encouraged, with plans to expand after testing.

Q: Barry Jonas asked about cohort performance and capital allocation.

A: Jason Robins said no significant cohort differences, and share repurchases continue with $140 million in Q1 and billion-dollar authorization.

Q: Ben Chaiken asked about external marketing spend and Jackpocket integration.

A: Jason Robins said marketing spend is on track, Jackpocket integration expected in back half, and profitability impacted by Texas exit but still growing.