DraftKings - Q4 2022
February 17, 2023
Transcript
Operator (participant)
Good day, thank you for standing by. Welcome to the fourth quarter 2022 DraftKings Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during this session, you'll need to press star one one on your telephone. You will hear an automated message advising you your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Stanton Dodge, Chief Legal Officer. Please go ahead.
Stanton Dodge (CLO)
Good morning, everyone, and thanks for joining us today. Certain statements we make during this call may constitute forward-looking statements that are subject to risks, uncertainties and other factors as discussed further in SEC filings that could cause our actual results to differ materially from our historical results or from our forecasts. We assume no responsibility to update forward-looking statements other than as required by law. During this call, management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating DraftKings' operating performance. These measures should not be considered in isolation or as a substitute for DraftKings' financial results prepared in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings presentation, which can be found on our website and in our filings with the SEC.
Hosting the call today, we have Jason Robins, Co-founder and Chief Executive Officer of DraftKings, who will share some opening remarks and an update on our business. Jason Park, Chief Financial Officer of DraftKings, will provide a review of our financials. We will open the line to questions. I will now turn the call over to Jason Robins.
Jason Robins (Co-founder and CEO)
Good morning, and thank you all for joining. First off, I am very excited about 2023. We are more focused than ever on expense management. Since our previous earnings call in November, we have made surgical decisions backed by strong analysis about our expenses and have actioned items that total an expected $100 million of adjusted EBITDA relative to our prior guide. Including the impact of the increase in our 2023 revenue guidance, we have improved our adjusted EBITDA guide from a range of negative $475 million to negative $575 million to a range of negative $350 million to negative $450 million. Notably expect to generate more than $100 million of adjusted EBITDA in the fourth quarter of 2023.
As you can see, we are in a great spot and are seeing an acceleration in our Contribution Profit and adjusted EBITDA. We will continue to explore ways to drive efficiencies both in our compensation and non-compensation expense categories. To be clear, the top line is performing very well, and we have strong momentum heading into 2023. We grew revenue 81% year-over-year in the fourth quarter and had an adjusted gross margin rate of 49%. Jason Park will speak more about what drove our strong fourth quarter results. Turning to our product offerings, DraftKings Mobile Sportsbook was the number one most downloaded sportsbook app in the United States on Super Bowl Sunday. For Sportsbook, one of our key product highlights was the launch of our own in-house Live Same Game Parlay product, making us the first operator to deliver this capacity end-to-end for the NBA.
This continues our focus on enhancing our parlay offering, which drives increased hold rates. For iGaming, we launched DraftKings Jackpots, a unique type of progressive jackpot that is shared across more than 100 slots and table games. We also received approval for our first live casino game developed entirely in-house, which we expect to launch in the coming months in New Jersey. I am proud of the team and culture we have in place. In particular, I am proud of our team for their relentless focus on efficiency and expense management over the past 12 months. While our work here is not done, we feel great about our trajectory and the ability the team has shown in driving strong revenue growth while also managing our expenses better than ever before.
I also know that it is critical for top management to not take their eye off the ball in this area, and I am personally very focused on ensuring that goals, compensation, and accountability are all aligned toward this very important objective. With that, I will turn it over to Jason Park.
Jason Park (CFO)
Thank you, Jason. Yes, let me hit on some of the highlights, including our Q4 performance, our new and improved 2023 guidance, and some information on our underlying state vintages. Please note that all income statement measures, except for revenue, are on a non-GAAP adjusted EBITDA basis. As Jason mentioned, we have great momentum coming out of Q4. In Q4, we posted $855 million of revenue, which represents 81% growth versus Q4 2021. This brought our full-year revenue growth to 73%. Adjusted EBITDA was positive in October and was positive for the entire quarter after adjusting for the roughly $75 million investment we made in our recent launches in Maryland and Ohio. Our revenue was better than our prior guidance, primarily because of structural improvement in our Sportsbook hold and fundamentally better customer trends than we expected.
Customers are engaging more with our products and are less reliant on promotions. We also managed out approximately $25 million of expenses in Q4. 2023 is off to a great start. This will be a year of continued revenue growth and expense management. 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 $2.9 billion-$2.95 billion. Our expense management programs have already identified $100 million of cost savings for 2023, roughly $50 million from scale marketing efficiencies and another $50 million from people-related costs.
These two factors, along with our higher revenue outlook, allow us to confidently increase our adjusted EBITDA guidance range from -$475 million to -$575 million to -$350 million to -$450 million. I also wanted to spend a bit of time on foundational state economics. At any given point in time, our company results are a reflection of a combination of mature states, newer states, and brand new states. Our states are performing very well, and we are seeing faster paths to positive contribution profit than we expected. For example, when we look at our 2018 to 2019 vintage of states, which represents roughly 10% of the U.S. population, we are seeing great results. In 2022, those states grew net revenue by 50% versus 2021.
This continued growth is due to several factors. We are seeing great customer retention, handle per retained player is growing, promotional reinvestment is coming down, and hold percentage is going up. Because much of the net revenue growth is coming from less promotions and higher hold, our adjusted gross margin rate in that vintage was up more than 400 basis points in 2022 versus 2021. Finally, our absolute marketing dollars in those states decreased by more than 15%. These are important statistics, as they are the foundational drivers of continued contribution profit expansion and acceleration across our states. This increase in total contribution profit, combined with much slower growth and fixed costs, results in an acceleration of our adjusted EBITDA profitability and clear progress towards achieving our long-term adjusted EBITDA goals.
That concludes our prepared remarks, and we will now open the line for questions.
Operator (participant)
Thank you. As a reminder, to ask a question, press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Shaun Kelley with Bank of America. Your line is open.
Shaun Kelley (Senior Research Analyst and Managing Director)
Hi. Good morning, everyone. Thank Thank you for taking my question. Jason or Jason was wondering if we could just drill down a little bit on some of what you're seeing on the kind of structural hold improvement that seems to be, you know, a really big story and one that you called out, you know, mix shift. Can you just give us a sense about 2 things. What's the underlying assumption for kind of 2023 as you think about what you saw results wise in the fourth quarter? Secondarily, you know, what's some of the kind of product roadmap? How do you think you can kind of continue to migrate customers into those types of products in the medium and long term? Thank you.
Jason Robins (Co-founder and CEO)
Great question. Really, I think I made a ton of progress in this area, which, I think has been enabled by having migrated towards the beginning of last NFL, excuse me, the previous NFL season to our own platform. Really, I think NFL 2022 was the culmination of a year's worth of work, which has continued through. We just launched Live SGP for NBA, which I think was the first operator to do so, and that was an entirely in-house built and traded product. Really, you know, I think we should expect to continue to see more and more effort towards driving a better parlay product offering, and I think that will continue to drive more mix shift. Also we are making other changes.
Certainly mix shift is the largest driver of what we're referring to as structural hold increase. We are also making other adjustments to our models, rolling out new and improved models, improving our data environment, and doing a lot of other things that are helping us improve our trading performance. I do think there's some additional upside as we continue to be able to execute against those things on the product roadmap.
Jason Park (CFO)
Yeah. I would add, Shaun, in terms of the question for guidance, as we saw the empirical structural hold flow through in Q3, late Q3 and Q4, we've embedded that into our 2023 revenue guidance, which is a big part of the increase in our revenue guidance that we provided today.
Shaun Kelley (Senior Research Analyst and Managing Director)
Thank you very much.
Operator (participant)
Thank you. One moment for our next question. That question comes from David Katz with Jefferies. Your line is open.
David Katz (Managing Director)
Morning, everyone. Thanks for taking my question, and congrats on the quarter. With respect to this kind of updated operating platform or the updates that you've made, if hypothetically, we were to see, and I know we've talked so much about sports betting, if we were to see iGaming hypothetically go live in New York, can you shed a little light on how that might impact, you know, what the guide is both on the, you know, loss and the cash flow side?
Jason Robins (Co-founder and CEO)
Absolutely. You know, I think obviously there's a lot of moving parts. You know, how big is the market? What's the, you know, structure around the tax rate, promotional deductions, those sorts of things. I think in general, what we've said in the past is we assume roughly 7%-8% of the US population, or even 7%-9%, are new sports betting markets each year and 3%-4% for iGaming. New York obviously would be on the upper end of that. But overall, those assumptions are baked into our 2024 guidance. I don't think even if New York did pass a bill this year, I think it's unlikely that it would go live this year. Remember, they passed a bill the year before they went live.
It was early the following year, but it took until the following year to go live for mobile sports betting. You know, some states have been faster, but I think most have generally been the following calendar year. I think we're looking at 2024. You know, as I mentioned, we've built in some assumption around that, but this would be a bigger iGaming market than we had assumed.
David Katz (Managing Director)
Just to follow that up, if I may, is it a fair assumption that, you know, that the negative impact both to earnings and cash flow from an iGaming state of size would be less than it would be from a sports betting? Or is that not a correct assumption?
Jason Robins (Co-founder and CEO)
No, I think that is correct, particularly if it's a state that already has sports betting, where we've already had a lot of customer acquisition investment like New York. You know, we've acquired hundreds and hundreds of thousands of players in New York already. I think the cross-sell opportunity there would be enormous. We know that some of these players are going to Connecticut, to New Jersey, to Pennsylvania to do iGaming now. I do think there is some incremental customer acquisition spend, but it's not the same as a fresh market where we haven't had, you know, hundreds of thousands of customers that we've acquired already. It's an accurate assessment, I think.
David Katz (Managing Director)
Got it. Thank you very much.
Jason Robins (Co-founder and CEO)
Thank you.
Operator (participant)
Thank you. One moment. We have a question from Jason Bazinet with Citi. Your line is open.
Jason Bazinet (Director)
I just have a high level question. You guys obviously are making a lot of progress, improving the operations. Every metric seems to be moving in the right direction. At the highest level, when you think about how these improvements compare to some of the long-term targets that you've laid out at prior investor days, is the implication that the goals are the same, but you'll just maybe get there faster? Or do you, is, if things keep going as well, is there scope for some of those to move up? Thanks.
Jason Robins (Co-founder and CEO)
That's a great question. You know, we will, later this year, be providing an updated long-term outlook at an investor day, so to stay tuned for that. Speaking to it conceptually, I do think there's some upside there. We certainly have some upside on the hold rate front. I think promotions will probably end up, you know, somewhere in line with where we think they'll be long term. Then on the cost side, I think there's always effort that needs to be going. That's something I think that really has resonated with the team is, yes, obviously 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.
That's a message that everyone on leadership has really taken to. The board conducted a thorough review of management incentives towards the end of 2021 and starting in 2022, which continued to 2023, completely realigned management incentives so that there was an equivalent focus on EBITDA and profitability to what we, you know, previously had on revenue. I think that, you know, when we look at the long term, like I said, 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.
Jason Bazinet (Director)
That's super helpful. Thank you.
Operator (participant)
Thank you. Our next question comes from Carlo Santarelli with Deutsche Bank. Your line is open.
Carlo Santarelli (Managing Director of Gaming and Lodging Equity Research)
Hey, guys. Thank you. Jason, whoever wants to take this one. As you guys think about kind of the structural hold improvements that you're making, and you think about kind of the new parlay product relative to retention and acknowledging it's early with a lot of this stuff, but you obviously had, you know, some growth over the course of 2022 with your addressable TAM, with new states that have come online. You know, I believe your monthly unique payers was up high 20s this year. I'm not sure if that is in line with kind of the addressable TAM that you brought up, but it seems similar at least.
As you think about, like, kind of that retention effort, as holds are rising, how could you kind of comment around the balance between how to retain and kind of how to improve efficiency on a per customer basis?
Jason Robins (Co-founder and CEO)
I think that's an extremely important question. You know, really in the end, it's all about the customer. We start there. 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. You know, we don't view it as a trade-off at all. We look at it as start with the customer, find the products that the customers want, and then, you know, ideally construct those products in a way that is both really exciting and benefits the customer and also creates attractive economics for the company. I think parlay is a great example of that. You know, we've had DFS for years, and while certainly, you know, DFS is a skill game, while certainly people do win, it's not as common.
When they win, they have an opportunity in these big tournaments to win very large prizes. I think the parlay product functions the same way. If somebody does a very large parlay with lots of legs, they have an opportunity to turn a very small bet into a large payday. I think that's really the value prop that's unique about the parlay product relative to the singles bets.
Carlo Santarelli (Managing Director of Gaming and Lodging Equity Research)
Great. Thank you, Jason. If I could, just one follow-up. In terms of adjusted sales and marketing, I think the external marketing in 2022 was a little over $800 million. You guys disclosed, the total was a little over $1.1 billion. Should we expect as soon as 2023, that expense starts to come down a little bit this year? Or is that relatively flat this year and maybe you leverage a little bit of the revenue growth, and then maybe in subsequent years is where we start to see that sales and marketing kind of chip away and go lower?
Jason Robins (Co-founder and CEO)
I think that's right. I think we'll be relatively flat this year. I think that we're, you know, obviously some of this will depend on the cadence of state launches, but based on sort of a baseline expectation, I think we'll be relatively flat this year. As you noted, I think as more and more states mature, as the market overall matures, you'll start to see it tail down a little bit. This year, I think we're expecting to be, you know, basically flat year-over-year.
Carlo Santarelli (Managing Director of Gaming and Lodging Equity Research)
Perfect. Thank you, guys.
Jason Robins (Co-founder and CEO)
Thank you.
Operator (participant)
Thank you. One moment. Our next question comes from Ed Young with Morgan Stanley. Your line is open.
Ed Young (Equity Analyst)
Thank you for taking my question. First of all, just to say thank you for some of the extra disclosure in the presentation. It's really very useful and appreciated. I want to ask about the statement you've reiterated really, which is around producing your first adjusted EBITDA positive quarter in the fourth quarter of this year, how that set them to 2024. You know, given as you mentioned, that you were there this Q4, except for the new state investment. Can you just help us sort of think about that statement? Is that due to the cadence of the cost savings that you mentioned? Is that due to conservatism around the new state launches and not having perfect line of sight to that?
Is there anything else? Is there a reason particularly why that couldn't come earlier? You just maybe don't wanna commit yourself to that. Thanks.
Jason Robins (Co-founder and CEO)
I think it's a great question, Ed. Certainly there's seasonality to the business and, you know, there are, there are quarters where there's deeper marketing investment like Q1 and Q3. I think that, you know, for us right now, especially given Ohio, Maryland are brand new, Massachusetts, we expect to launch hopefully sometime in March. I do think that that's really the reason behind us staying with the Q4 message. I think because of those launches, we expect an even better Q4. What we're seeing is that those states so far, Maryland and Ohio at least, are ramping faster even than Arizona. Arizona was the fastest ramping state we had, and some of our more recent states like Maryland and Ohio have really even been faster.
I think the good news is that that's gonna contribute more contribution profit sooner. I just don't know if Q2 is too soon to expect that. Either way, I think that we'll be, you know, continuing to focus on efficiency, continuing to focus on trying to get profitable sooner. That's the goal of the company. You know, right now I think we're comfortable to committing to $100 million-plus in EBITDA in Q4, but we're trying to get that number up, and we're trying to get every quarter to do better than what we're thinking right now. There's a number of efficiency-oriented initiatives around the company that I think could potentially contribute some upside.
Ed Young (Equity Analyst)
Thank you.
Operator (participant)
One second. Our next question comes from Jed Kelly with Oppenheimer. Your line is open.
Jed Kelly (Managing Director and Senior Analyst)
Hey, great. Thanks for taking my question. Maybe following up on Carlo's question. Can you just talk about your churn rate this football season, I guess, with the higher holds and you did have a better football outcome too versus last year and what's kind of driving the underlying churn rate? Just question just on 1Q. Can you talk about sort of some of the dynamics around the first quarter? I think last year March Madness was a negative or lower than you thought. Can you talk about sort of some of the comps we should be thinking about for 1Q? Thank you.
Jason Robins (Co-founder and CEO)
I think so on, you know, the first question, we've seen really strong retention rates. Obviously we've been keeping an eye on this as holds has increased. We have other market comps that we see at, you know, even higher hold levels than us that have, I think had decent retention. We feel confident there's still room to increase hold without affecting churn. Thus far we've seen only positive trends on the retention rate side. As far as, you know, March Madness, I think, you know, it's been a weird last few years. You had the cancellation of March Madness in 2020. You know, I think college basketball is really, you know, coming back in a big way now in terms of popularity.
We're seeing more adoption in the regular season than we had in the previous couple seasons. We think it's gonna be a great March Madness and I'm really looking forward to it. It'll be. Hopefully, if Massachusetts gets live, it'll be the first time that, you know, residents of Massachusetts will be able to bet in state. I think that'll be a big opportunity. Then obviously, you know, continuing to learn more and get better on figuring out ways to drive better bet mix. That said, college sports, I will say is one of the tougher ones on the bet mix side because a number of states don't allow player props, and also people are generally just less familiar with the players, so they're more likely to combine parlays of multiple teams.
We'll be focusing there. Obviously still trying to drive the Same Game Parlay product too, but I think college sports, multi-game parlay is a little bit easier than Same Game Parlay given some of the dynamics I described.
Jed Kelly (Managing Director and Senior Analyst)
Great. Just one quick follow-up. Is there anything to call out from the World Cup in 4Q that won't be in there this year? Thanks.
Jason Robins (Co-founder and CEO)
World Cup was great. I mean, no doubt about it. That said, it was low single digits, you know, % of our revenue. I think, you know, we don't believe that there's anything really that you should adjust accordingly from World Cup. I think that, you know, it was a nice little boost but didn't have a tremendously material impact on our financials last quarter.
Jason Park (CFO)
I would just add, Jed-
Jed Kelly (Managing Director and Senior Analyst)
Thank you.
Jason Park (CFO)
I would just add on World Cup, that was obviously already included in the Q4 guidance that we provided in November. When we looked at the data on a customer by customer level, it felt more as much like a handle shift between sports that were very prevalent in Q4 as it was sort of true incrementality. Thank you.
Operator (participant)
Thank you. Our next question comes from Robert Fishman with MoffettNathanson. Your line is open.
Robert Fishman (Senior Research Analyst)
Hi, good morning. You called out how you're looking for more efficiencies around not renewing certain team, league, and media rights going forward. I'm just wondering if you can expand upon these different relationships and maybe how they've changed over the past year or 2 since you first signed the deals now that some of the other OSB players have pulled back?
Jason Robins (Co-founder and CEO)
Yeah, I think, you know, what you're describing is one of the many efforts around the company aimed at becoming more efficient and obviously marketing being a big expense category, team and league deals being a big expense category. We feel there's room there. you know, we've had a number of partners that have been very constructive and have agreed to reductions that would make these deals efficient in the way that we need them to be. there's others that we will be discontinuing when the deals come up and have discontinued as they've come up over the past year. it's really been a mix.
There's been a lot of really great partners, though, that have recognized that the market's changed, have said, "Look, we want long-term to be in business with DraftKings, and we realize that this is not an efficient part of the portfolio right now, and we need to rework it." you know, and there have been others that we've had to unfortunately discontinue the deals with. it'll be a mix of things, but it's really part of an overall effort that we have to be more efficient as a company, and I think there is an opportunity in this category to get even better.
Robert Fishman (Senior Research Analyst)
If I could just ask one quick follow-up, any update you'd care to make about the future partnership with Disney and whether the relationship has changed at all since the early days since Bob Iger is back?
Jason Robins (Co-founder and CEO)
No, I mean, we've continued to have a great relationship with Disney, ESPN, Jimmy Pitaro, and his team have been great partners. you know, we've really enjoyed that relationship, gotten a lot out of the partnership. you know, we always talk to our partners about ways that we can improve and extend and grow the relationship. you know, Disney and ESPN have been a great partner thus far.
Robert Fishman (Senior Research Analyst)
Thank you.
Operator (participant)
Our next question comes from Clark Lampen with BTIG. Your line is open.
Clark Lampen (Managing Director and Digital Gaming Analyst)
Hey, thanks. Good morning. I've got just one for Jason Park. Jason, if we assume you guys are finishing 2023 with, I guess, let's just say as a wide range, $600 million-$800 million of cash, and you're gonna be, at that point, a lot closer to break even on a cash flow basis, does it make sense to be a little bit more aggressive with cash usage or explore debt financing options, you know, in a market where so many of your competitors are now leaning out, at least on the sports betting side, and you're past the point of having to illustrate to the market that you won't need to, you know, raise capital just to remain a going concern? Thank you.
Jason Park (CFO)
Yeah. Appreciate the question, Clark. Yeah, just to clarify, I would not say that we're at, like, $600-$800. I would say greater than $700 million ending 2023. So maybe $700+ is probably a better way to think about it. Yeah, and look, I think the most important thing is we're in a great place where we can just focus on operating the business, finding efficiencies, not having to worry about any type of financing needs. In terms of broader questions around debt's role at DraftKings, we'll continue to evaluate the entire capital structure, obviously the macro environment on potential instruments like that, and we'll come back to you if anything comes to fruition.
Jason Robins (Co-founder and CEO)
Yeah, I'd just add that I think that because of our cash position, were there an opportunity to be aggressive in places we don't need capital, whether equity or debt financing. It's something I think if there was some strategic opportunity or something like that, perhaps we would explore. From an organic standpoint, we don't need to. I think it's unlikely you'll see us take out any debt and any, I mean, any equity capital at all. I think it's virtually, you know, impossible to imagine a scenario where we do so for organic purposes.
As far as leaning in more, we are trying to be surgical. That means not just cutting and being efficient in places that we know we need to be more efficient, but also leaning in in places where we have the data and the conviction. That said, you asked the wrong guy in Jason Park. I don't think he's met a cost he's liked in the last year. He's yeah, sometimes we have to tell Jason you can't cut everything. Definitely, you know, the team is I think as a result of having a great, you know, analytically driven culture and a great amount of data, very confident that there are places that, yes, we certainly are cutting, but we also need to be leaning into as well.
Clark Lampen (Managing Director and Digital Gaming Analyst)
Thanks, Jason.
Operator (participant)
Thank you. Our next question comes from Ben Chaiken with Credit Suisse. Your line is open.
Ben Chaiken (Senior Analyst and VP of Equity Research)
Hey, how's it going? On the SG&A side, the guide for 23 suggests maybe up 10% or 12% year-over-year, 23 versus 22. I'm kind of bucketing everything between contribution profit and EBITDA. Does that growth rate continue? That's relative to a, you know, 40% growth rate between 22 and 21. Does that growth rate continue to decelerate even as you add new states?
Jason Robins (Co-founder and CEO)
The growth rate of fixed costs?
Ben Chaiken (Senior Analyst and VP of Equity Research)
Just the whole SG&A bucket, so everything between contribution profit and EBITDA that's growing...
Jason Robins (Co-founder and CEO)
No.
Ben Chaiken (Senior Analyst and VP of Equity Research)
in the 10 to 12 range.
Jason Robins (Co-founder and CEO)
Yeah, I think there's really very little fixed cost impact of launching new states. There's some customer service sometimes, but we're also working hard to find ways to be more efficient there. Hopefully we're able to offset any need to grow there with other efficiencies that we find. Really it's mostly variable cost COGS that we see with new revenue coming in from new states. There's obviously marketing expense, but not really fixed cost. I think most of our functions are at scale or pretty close. That's why you're seeing moderate fixed cost growth this year, a significant reduction in fixed cost growth year-over-year. I also think that the team is working hard to be more efficient.
I think that there's been a real, light bulb that's gone off here that we can do more, and actually grow revenue faster if we become more efficient. There's a connection between being better focused on expense management and efficiency with revenue growth, with doing better for the customer. I think making that connection and realizing that actually these things feed off of each other, that the better we do to manage our expenses and be more efficient as an organization, the more that we're gonna be able to deliver value for the customer, and that will actually lead to market share gains and revenue growth. I think that's been a real, you know, rallying cry for the team over the past year, and it continues to be in 2023.
Ben Chaiken (Senior Analyst and VP of Equity Research)
Got it. That's super helpful. Thanks.
Operator (participant)
Thank you. Our next question comes from Michael Graham with Canaccord Genuity. Your line is open.
Michael Graham (Managing Director and Director of Research & Investment Strategy)
Hey, thanks a lot. I just wanted to ask about some of the disclosures you had around the growth in your mature states. You know, that 2018 to 2019 cohort, you referenced 50% year-over-year growth, and you gave some good reasons, you know, for that growth around retention and increased hold. I just wanted to ask about, like, what you are seeing in terms of customer growth, player growth in some of those mature states and, you know, are do you feel like you're getting close to terminal penetration or like what are you learning about the way the model works as you kind of get a little bit deeper into some of these mature states?
Jason Park (CFO)
Yeah, great question. Thanks for calling that part of the letter out. I'd say if you unpack the 50% revenue growth that we experienced in the 2018-2019 vintage, probably, you know, 70% was from existing customers and call it 20%-30% was from new customers. Point is, even though those states were in their third or fourth full year, we were still acquiring new customers. We haven't found a ceiling yet in, even in those more mature states in terms of total population penetration.
Jason Robins (Co-founder and CEO)
Yeah. I think also if you look at comps around the world, other markets, I mean, growth typically occurs decades in. Obviously, growth rates go down. It's not gonna continue growing at 50% forever, but I don't expect we've hit any sort of ceiling there. I know different dynamics, but the iGaming market in New Jersey, which is now coming up on almost a decade, still growing. I think lots of comps around really, you know, not just the world, but if you look at the U.S. lottery market and other sorts of comparisons, it's just very much a market that I think always has new customers coming into it. I think there's an expectation that we should have that there'll be pretty steady growth for at least another decade or so.
Jason Park (CFO)
Just super important, Mike, like, the sources of growth is the point is much more than just new customer acquisition. It is existing customer handle growth, that whole improvement and continued promo reduction that drives that net revenue growth.
Jason Robins (Co-founder and CEO)
We're still in the phase of the market where we're finding big wins on the product front. We're finding ways that we can be, you know, more smart operationally, that we can reach customers in a more effective way. I think there's still many years of just innovation that will drive growth in our consumer wallet share. When we think about wallet share, we don't just think about it within our own industry. We think about our customers' entertainment wallet share. We believe that, you know, customers will be willing to spend more time with us and spend more with us if we create better products that they find more entertaining than other things they could be doing for fun.
Michael Graham (Managing Director and Director of Research & Investment Strategy)
Okay. Thank you, guys, and congrats on all the progress.
Jason Robins (Co-founder and CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from Bernie McTernan with Needham and Company. Your line is open.
Bernie McTernan (Senior Analyst)
Great. Thank you for taking the questions. Jason, I want to take your pulse on the M&A market. Just given everything you've talked about in the shareholder letter on profitability, does that impact your philosophy on using your stock as a currency?
Jason Robins (Co-founder and CEO)
You know, I think they're somewhat independent. Obviously, the more that we can get some momentum behind the stock, the more attractive it becomes as a currency. I don't think that it's really something that we really are focused on right now. We're very focused on our internal operations, focused on getting more efficient. Obviously, there will be a time in the market and, you know, hard to predict because we're in such a rapid, you know, phase of evolution right now. There will be a time in the market where those things really make sense, and we can focus more on it.
Right now, there's a lot of focus on just how we can, you know, make sure that this company is on a clear path to profitability and that we're operating in the most efficient and cost-effective way we can.
Bernie McTernan (Senior Analyst)
Understood. Then just a follow-up on parlays. I think a big question, just given the success, is where could it go? Do you guys have a sense in terms of just what the US penetration of parlays is relative to the rest of the world or more mature markets?
Jason Robins (Co-founder and CEO)
You know, I think that's a great question, and it's tough to compare to rest of world. I think the U.S. is a bit unique. You know, my belief is that the U.S. consumer, in the gaming market, a lot of the roots of it are in the lotteries where, you know, there have been lotteries across states for a lot longer than casinos and other sorts of gaming products. That lottery mentality of big jackpots, I think, has carried over into other products. We even see it in DFS, where our most attractive offerings are the large tournaments that you can enter for, you know, anywhere from $3-$20 and win hundreds of thousands or million-plus in prizes. I think that's carrying over into the U.S. market.
I actually think for that reason, parlays have more upside than they would in other parts of the world. Not to say that they're not popular in other parts of the world. They call them accumulators in Europe, certainly that's been a big growth area overseas. I think the U.S. customer is uniquely oriented towards the kind of proposition of bet a little to win a lot. I think there's a lot more upside, and we're still at the infancy stages of this product. I mean, there's so much we can do to innovate and make it more exciting and more fun for the consumer.
Bernie McTernan (Senior Analyst)
Great. Thanks for taking the questions.
Operator (participant)
Thank you. Our next question will come from Ryan Sigdahl with Craig-Hallum. Your line is open.
Ryan Sigdahl (Managing Director and Senior Research Analyst)
Good morning, guys. Curious to get your thoughts on the current competitive dynamics. We've seen several operators pulling back, more notably on online sports betting than iGaming. But then you have Fanatics with the, you know, most notable high profile, I guess, new incumbent coming or entrant coming. How do you think about promotional and marketing intensity from an industry standpoint in 2023, better or worse year-over-year?
Jason Robins (Co-founder and CEO)
I think it'll be better. There'll be more mature states. I think that natural kind of, you know, promotional reduction that happens as states mature, we'll continue to see a tailwind from that. You know, obviously there's always gonna be new entrants coming in and out of the market. I think one thing we've seen, though, is that, and I expect the same would apply to, you know, any new entrant, the market competitively has become much more rational. You know, we talked about this in the letter. There was a period of time in 2020 and part of 2021 where there was really a message from the market that market share and revenue growth were all that mattered. I think you saw, you know, some irrational behaviors from some of our competition coming about as a result.
I think once the market started to, you know, change their tune and there was more of a demand on accountability for efficiency and profitability, you saw that change. I don't see that changing again. I think that we're in a new phase of the market where competing on a much more rational playing field is the norm. I think that you'll continue to see that whether it be existing operators or any new operators that come into the market.
Ryan Sigdahl (Managing Director and Senior Research Analyst)
Thanks, Jason.
Operator (participant)
One moment. Our question comes from Dan Politzer with Wells Fargo. Your line is open.
Dan Politzer (Director and Senior Equity Research Analyst)
Hey, good morning, everyone. Jason, I was hoping just to clarify on the 2023 revenue guidance. I think for the fourth quarter, you guys had $30 million uptick in revenue from the structural improvement in Hold. I just wanted to clarify, your 2023 guide that you issued at the same time, that did include the Hold benefit? Just for my follow-up, just the pace of the fixed OpEx deceleration, if you could maybe parse that out in terms of, you know, the G&A, product and tech and other corporate marketing and I guess where you're seeing the most efficiencies. Thanks.
Jason Park (CFO)
Yeah. In terms of your first question on Hold percentage, yeah, that's all embedded within the guide and the H1, H2 revenue split that we provided. Any type of empirical pattern that we're seeing that we have confidence will continue, we'll embed into our guidance. In terms of further breakdown of P&T, S&M, G&A, fixed cost growth, I think someone earlier mentioned 10%-12% growth. I would say that that's pretty similar across all three of those areas.
Dan Politzer (Director and Senior Equity Research Analyst)
Got it. Thanks.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from Brandt Montour with Barclays. Your line is open.
Brandt Montour (Director and Senior Equity Research Analyst)
Hey, good morning, everybody. Thanks for taking my question. I wanted to ask about iGaming. Looks like you guys have had really good success gaining share on the DraftKings side in New Jersey in the fourth quarter, Pennsylvania in the fourth quarter, Michigan in the third quarter. I'm just curious if you're able to sort of break down that success between some of the things you mentioned in terms of product like progressive jackpot or success you had in cross-selling during this NFL season, or if there's any sort of cross-learnings you're leveraging from GNOG. You know, any color can be helpful for us. Thank you.
Jason Robins (Co-founder and CEO)
Thank you. I appreciate it. I mean, we are really pleased that in January, we had the number one market share in iGaming in New Jersey for the first time since we launched in December of 2018. you know, great culmination of over four years of effort from the team, building products, optimizing our analytics, you know, and obviously onboarding a new brand in GNOG. I think the most exciting thing is that we feel the biggest upside is yet to come when we migrate GNOG to the DraftKings platform and product suite. That's gonna hopefully, you know, happen later this year, and I think that will give us an additional boost, as well as provide ongoing cost savings due to not having to pay revenue shared as many third parties.
Lots of benefit there, and I think already seeing some great results from the product side. Also you mentioned too, I think we've gotten even more effective at cross-sell, I think especially as we get more data, you know, that's sort of our sweet spot. The more data we have, the more effective and efficient we can become. Not only have we gotten more effective at increasing cross-sell, we've been able to do it more efficiently as well. That's something that I'm very proud of that the team's been able to make great progress on.
Brandt Montour (Director and Senior Equity Research Analyst)
If I may just quickly follow up on that, is it fair to assume that 2023 guidance assumes that you're able to hold the share gains that you just recently enjoyed?
Jason Robins (Co-founder and CEO)
There's always seasonality in the business, so naturally we're gonna do best during heavy sports periods on the cross-sell front, just more activity in the platform. We've embedded that in. Yes, I think as far as, like, when you adjust for that and look at where we are today, I would say yes, although the January report is brand new, so, you know, I can't say that we've necessarily, like, looked at the implications of that. More so what we do is we look at the underlying cohort data, and we bake in, you know, adjustments for seasonality as well as any other initiatives or efforts or actions that we plan on taking.
Brandt Montour (Director and Senior Equity Research Analyst)
Excellent. Thanks.
Operator (participant)
Thank you. Our next question comes from Joe Stauff with SIG. Your line is open.
Joe Stauff (Senior Equity Research Analyst)
Thank you. Good morning. Thanks for all the information. I wanted to follow up and ask, you know, on user growth, you know, Jason, you had mentioned, and certainly we can observe this, that, you know, they're ramping so much faster. So, I guess, what is the right way to think about kinda how long, you know, it takes you to reach that sort of golden cohort, nowadays, I guess maybe, you know, versus a one year and a half ago? I had one follow-up, please.
Jason Robins (Co-founder and CEO)
Well, it's a great question, Joe. I think, you know, this is a tricky one because as we compare states, there's differences in time of year. You know, we talk about Arizona ramping quickly, that was in September. Then you try to compare that to, you know, a state like Ohio or Maryland that launched, you know, Maryland towards the end of the year, Ohio, Jan. 1st, or Massachusetts that we expect to launch in March. You have to, you know, there's only a limited number of data points when you have all those different variables to really be able to say. I think at sort of a big picture level, the implication is, one, there's probably some deeper investment up front.
You know, I think that what we've been really happy to see is that we've actually, at least through 2022, been able to absorb that by finding efficiencies throughout the rest of the business. If you look at the letter, we basically funded all the state launches in 2022 through finding cost efficiencies elsewhere in the business. The other implication of it is that the inflection towards contribution profit positive happens sooner. You get greater operating leverage sooner, which means more upside from a revenue and profitability standpoint sooner. I think that's kind of the way to think about it. You know, exactly how it ends up netting out over the course of the year, I think we need a little bit more data to see.
You know, at a macro level, that's kinda how I describe it. No matter what, you know, whether you take seasonality or anything else, it is unequivocally observably true that states are ramping much faster than they were, you know, 3, 4 years ago.
Joe Stauff (Senior Equity Research Analyst)
That makes sense. Then maybe just to follow up on structural hold in general. You certainly mentioned that the new in-house NBA Same Game Parlay, you know, sort of capabilities that you had launched. I was wondering, you know, I know at least for part of your NFL product, you do outsource Same Game Parlay. Wondering if your 2023 guide includes bringing that in-house.
Jason Robins (Co-founder and CEO)
The team is working at bringing that in-house now. You know, as far as our 2023 guide, we do expect at some point in 2023 that that will be the case, and that is built into the guide. It won't affect the entirety of 2023. I noted this earlier, we have already started to roll out some of our own in-house, SGP. You know, most recently the Live SGP NBA product we rolled out, we were the first in the industry to have it. I think that's a, you know, a good signal that we're reaching a period where we have, you know, now with over a year and a half under our belt, lots of data to build out some of these new models.
We've gotten to a point where we feel like we can put out models that are as good or better than what we can get off the shelf from third parties.
Joe Stauff (Senior Equity Research Analyst)
Thanks very much. Great quarter.
Jason Robins (Co-founder and CEO)
Thank you, Joe.
Operator (participant)
Our next question comes from Chad Beynon with Macquarie.
Chad Beynon (Managing Director)
Good morning. Thanks for taking my question. First, just wanted to ask about opportunities or aspirations in non-North American markets. Given your data science and kind of all the learnings that you've had in the past couple years, it seems like you're in a pretty good position to make a dent in some of those markets. Obviously a lot to do still here in North America, but wondering if anything has changed in other markets. Thanks.
Jason Robins (Co-founder and CEO)
I do think you're right that the technology we built, is going to be very portable to, you know, the global gaming market. We believe that when we do decide to expand overseas, we'll have advantages over incumbent competition when it comes to product, when it comes to hold rate, things like that. That said, we are laser-focused on the U.S. and on Ontario right now. I think that, the opportunity here remains very significant and growing. We have a lot of work to do to become more efficient as an organization that we need to focus on. There will be a time and a place to focus on international expansion, but it's not going to be right now.
Doesn't mean that we won't look at it and start to do some exploratory work this year behind the scenes. I think, you know, we have to always be thinking about what, you know, future things we want to do and start laying some of the research and groundwork for that. You know, on the whole, the team is very focused on how do we continue to make progress and do better for the customer in the U.S., and how do we continue to become more efficient and cost-effective as an organization.
Chad Beynon (Managing Director)
Thanks, Jason. Then a follow-up to that, just on the iGaming, iCasino legislation. I know you and your competitors on the mobile side are doing a lot of work, communicating the story. It also seems like a lot of the land-based operators are as well as they've seen, you know, probably lower cannibalization than they may have feared. Do you think there will be more momentum? Do you think that's more based on kind of what happens in the economy? You know, what's really gonna start kind of the rolling stone for more iCasino discussions? Thanks.
Jason Robins (Co-founder and CEO)
It's a great question, and I think that, you know, You noted one, I think, certainly, the opportunity for tax revenue and should states find themselves more in need of that could have an effect. I also think that as an industry, we need to do a better job getting the story out there. There's a lot of, you know, great work that's been done by the AGA and other groups to really put the data out there about just how significant and large the illegal sports betting market is. I think that's been a big driver of policymakers saying, "Look, we gotta do something here." I don't think there's been nearly as much coverage of the illegal iGaming market, even though it exists.
I mean, if you go to pretty much any of the mobile sportsbooks and online sportsbooks that you see overseas, that are operating illegally, almost all of them have an online casino. It's just not talked about as much. I think inherently it's a less social product. People talk about it less. I think, you know, like I said, the industry probably just hasn't focused as much as we could have on really making that data clear. I think it's a combination of those two things, those states that, you know, see the tax opportunity and realize that there's, you know, a real way to take something that's happening already, just like sports betting is in the illegal market, and bring it into the light and protect consumers and also, you know, generate revenue for the state.
Chad Beynon (Managing Director)
Appreciate it. Thank you.
Operator (participant)
Thank you. Our next question comes from Robin Farley with UBS. Your line is open.
Robin Farley (Managing Director and Senior Equity Analyst)
Great. Thank you. I wonder if you could give us a little bit of color on your guidance for states that are contribution positive. It was 11 states getting to $105 million last year. For the $500 million this year, how many states will that be to generate that $500 million? Is it still, at one point, you talked about a three-year payback period for, you know, when a new state legalizes until it's profitable. Is that faster now given the ramp-up in Arizona? What would you say that timeline is? Last, a little clarification. You talked about the % of population, you know, that your long-term guidance is, you know, 7%-9% of new OSB every year.
It's fair to say, though, right, that your 2023 and 2024 guidance, specific your 2024 guidance, doesn't rely on any states that haven't already actually legalized, just not operational yet, right? In other words, no new legislation needs to happen for that to be hit. Thanks.
Jason Robins (Co-founder and CEO)
That last point is correct. The only state that's not even live yet that we did assume in the guidance is Massachusetts, the reason is it's pretty far down the line. We felt it was more helpful to investors to get a view with Massachusetts included. We have not assumed any other state launches from new legalization that happens this year. As far as I'm gonna try to remember I think the first one. On a sort of state-by-state basis, we have not disclosed which states are contribution profit positive for 2023 yet. We plan on covering that in more detail at our Investor Day later this year, we will be providing additional disclosure and data on that. We had to save something for that to keep you, to get you to show up, Robin.
I'm sorry, what was your second question? Speed of profitability inflection.
Robin Farley (Managing Director and Senior Equity Analyst)
Oh, just the 3 years.
Jason Robins (Co-founder and CEO)
I think you're absolutely correct. One of the implications of faster ramping with new states is that the inflection to profitability and the degree of operating leverage that you get earlier is greater than what we had seen in some of the earlier states that launched in more of the 2018, 2019, 2020 timeframe. You know, there is that implication, and I think that could potentially have an effect not just with the states we're seeing launch in recent months as well as Massachusetts, but with future states that launch that, you know, again, something I think we'll address at the Investor Day.
In a nutshell, to answer your question directly, I do think it brings in the timeline to path to profitability for a new state, and we'll be providing a more specific update on that later this year.
Robin Farley (Managing Director and Senior Equity Analyst)
Great. Thanks very much.
Stanton Dodge (CLO)
I just wanna make sure I'm clear, Robin. The 2024 EBITDA does include an assumption of more states legalizing?
Jason Robins (Co-founder and CEO)
Yes. Sorry, so 2023 does not. 2024, we have assumed 7%-9% or 7%-8%, I forget, of the population, launches for sports betting and 3%-4% for iGaming.
Robin Farley (Managing Director and Senior Equity Analyst)
Okay. That would be that some new states in this legislative session, right, would have to.
Jason Robins (Co-founder and CEO)
That would be. Yeah. The implication, if that comes in higher or lower, if it's less so, while it may mean less, you know, TAM, it actually means we're probably going to have faster profitability ramp. You know, I think either way it's a good story for the company, but obviously we're pushing hard to get more legislation passed.
Robin Farley (Managing Director and Senior Equity Analyst)
Then also that would mean that your 2023 guidance includes the losses from those new states, right? If the profitability is in your 2024 guidance, the losses would be in the 2023 guidance already. In theory, that would be required to happen.
Jason Robins (Co-founder and CEO)
No. No, sorry. We did not. No, we assumed other than Massachusetts, no more state launches in 2023. There will be no effect in 2023 if that occurs. If we do see more states launch in 2023, yes, that will happen. But what I was referring to was launches in 2024. What that would mean is that the investment period for those states would be in 2024, and would have a downward, you know, sorry, if there were not launches, would have a positive impact on EBITDA in 2024.
Robin Farley (Managing Director and Senior Equity Analyst)
Okay. All right. Thank you.
Operator (participant)
Thank you. Our next question comes from Joe Greff with JPMorgan. Your line is open.
Joe Greff (Managing Director and Senior Equity Research Analyst)
Good morning, guys. Just with regard to the incremental benefit in 23, or the 23, updated guidance versus three months ago, and the benefit coming from, more efficient promotional activity and more efficient, promotional reinvestment, how broad-based is that? Or how market concentrated is that? You know, how much of a benefit from a market like New York is driving that improvement?
Jason Robins (Co-founder and CEO)
The bulk of our of our guidance increase on the EBITDA side came from direct expense management. About half of it came, or about $50 million of it, I should say, came from compensation expense. About $50 million came from marketing. Definitely big impact there. Some of the revenue increase was hold rate and promotion optimization, some of it was some underlying, you know, handle/retention metrics we're seeing in our cohorts. You know, as far as state by state, I don't think there's anything in particular at the state level that's different. You know, states are maturing as expected, the increases we're seeing to hold rate are happening across the board. We do see in some of the newer states that we've launched that we have faster adoption of parlays and Same Game Parlays.
I think that's largely because our product offering is in such a better place than, it was, you know, a couple of years ago. You know, that I think is probably the one example. Other than that, I think the increases that we're making to hold rate and other things that are driving underlying performance on the retention and monetization front are really across states, state vintages.
Joe Greff (Managing Director and Senior Equity Research Analyst)
Thank you.
Operator (participant)
Thank you. That's all the time we have for questions. I'd like to turn the call back to Jason Robins for closing remarks.
Jason Robins (Co-founder and CEO)
Thank you all for joining us on today's call. We had a really great finish to 2022 and are excited about 2023 and beyond. I look forward to speaking with you over the next few weeks, and hope you all stay safe and well. Thank you.
Operator (participant)
This concludes today's conference call. Thank you for participating. You may now disconnect.