DraftKings Inc. Q2 FY2025 earnings call

• DraftKings set records for revenue and adjusted EBITDA in Q2 with 37% y/y revenue growth. • Sportsbook net revenue up 45% y/y, handle up 6%, live betting handle up 16%, hold percentage improved. • iGaming net revenue up 23% y/y with growing jackpot engagement. • Adjusted gross margin increased to 48% due to higher hold percentage and promotional efficiency. • Operating expenses in line with expectations with cost discipline and scale-driven efficiency.

In the second quarter, DraftKings achieved records for revenue and adjusted EBITDA. Sportsbook net revenue increased 45% year-over-year to a significant amount, with handle up 6% to ~$11.5 billion, live betting handle up 16%, and hold percentage improving. iGaming net revenue was consistent with expectations, up 23% year-over-year driven by active customers and growing jackpot engagement. Sportsbook contributed a larger revenue share, with iGaming also making a notable contribution.

• Maintained fiscal year 2025 guidance with revenue expected near the high end of $6.2B - $6.4B range. • Adjusted EBITDA expected near midpoint of $800M - $900M. • Anticipated financial impacts from Missouri mobile Sportsbook launch and higher taxes in NJ, LA, IL. • Sportsbook net revenue margin expected to exceed 7.5%, adjusted gross margin 46%, free cash flow ~$750M.

• Uncertainties around federally regulated prediction markets and regulatory responses. • Potential impacts of new tax implementations in states like Illinois and how they might affect market share and TAM. • Dependence on sports outcomes which can normalize over time, potentially affecting short-term results.

Q: How to size potential investment in prediction markets?

A: TAM is tricky as products are nascent, but existing OSB states provide benchmarks. Tech details too early to determine. First mover importance is evaluated with consideration of downsides.

Q: Opportunities to streamline costs and offset tax increases?

A: Opportunities in state access fees, data rights fees, payment optimization. Older agreements have potential for rate reductions, and AI initiatives can help with cost efficiency.

Q: AI impact on top line vs expense optimization?

A: More focus on expense optimization currently, but some AI initiatives in trading could impact top line in 6-12 months with not enough data yet to quantify.

Q: iGaming progress and customer mix?

A: iGaming is ramping up but more work needed. Customer mix roughly in the 80-20 range typical, with 20% of customers still millions of people.

Q: Illinois wager tax and market share?

A: Illinois tax implementation is unprecedented, hard to predict impact. Tweaking pricing may be considered depending on tax treatment, and effects will inform approach for other high tax jurisdictions.