DI
DraftKings Inc. (DKNG)·Q1 2025 Earnings Summary
Executive Summary
- Q1 2025 revenue grew 20% year-over-year to $1.409B, but modestly missed S&P Global consensus; Adjusted EPS of $0.12 was a significant beat vs Street expectations *.
- Management lowered FY2025 guidance to $6.2–$6.4B revenue and $800–$900M Adjusted EBITDA, citing customer‑friendly March outcomes and tax/regulatory headwinds (Maryland rate increase; Jackpocket exits in TX/NM), while emphasizing stronger structural hold and promotional efficiency .
- Core metrics improved: structural Sportsbook hold rose to 10.4%; adjusted gross margin reached ~45% amid rising parlay/live adoption; MUPs grew 28% to 4.3M (ex‑Jackpocket +11%), ARPMUP $108 (ex‑Jackpocket +7%) .
- Stock reaction catalyst: Large EPS beat and Q2 guide (> $200M Adjusted EBITDA) juxtaposed with lowered FY guide; narrative centers on random outcome volatility vs. strengthening fundamentals (structural hold, promo efficiency, live betting) .
What Went Well and What Went Wrong
What Went Well
- Rising structural hold and promo efficiency lifted adjusted gross margin to ~45%, despite unfavorable sports outcomes .
- Strong customer acquisition and engagement; MUPs +28% YoY to 4.3M; ex‑Jackpocket +11% YoY; ARPMUP steady ex‑Jackpocket (+7%) .
- Management confidence in randomness of outcome volatility; quote: “We are 100% confident that these are random outcomes... structural hold and hold should converge over time.” — Jason Robins .
What Went Wrong
- Customer‑friendly March outcomes (NCAA tournament favorites historic win rates) pressured revenue/EBITDA and led to lowered FY25 guide .
- ARPMUP −5% YoY to $108 due to lower Jackpocket ARPMUP vs core DK customers .
- Tax/regulatory headwinds (Maryland tax increase; Jackpocket exiting TX/NM) cited as ~$30M revenue and ~$26M Adjusted EBITDA drags on FY25 .
Financial Results
Consolidated Results vs Prior Periods and Estimates
Values marked with * retrieved from S&P Global.
Interpretation:
- Q1 2025: Revenue slight miss vs consensus; Adjusted EPS major beat *.
- Q4 2024: Revenue in line/slight miss; Adjusted EPS beat *.
- Q3 2024: Revenue miss; Adjusted EPS beat *.
Segment / Revenue Disaggregation (Q1 2025)
KPIs Across Quarters
Guidance Changes
Note: Management cited customer‑friendly outcomes and tax/regulatory changes as drivers of the FY25 guidance reductions .
Earnings Call Themes & Trends
Management Commentary
- “If not for customer‑friendly sport outcomes in March, we would be raising our fiscal year 2025 revenue and adjusted EBITDA guidance.” — Jason Robins .
- “Structural Sportsbook hold percentage of 10.4% outperformed our expectations… actual Sportsbook hold percentage was 9.5%.” — Alan Ellingson .
- “Live betting is up significantly… first time live exceeded 50% of total handle.” — Jason Robins .
- “We expect adjusted EBITDA to exceed $200 million in Q2.” — Alan Ellingson .
- “We repurchased 3.7 million shares in the first quarter under our existing program.” — Alan Ellingson .
Q&A Highlights
- Structural vs actual hold: Management reiterated outcome randomness and convergence; models will adapt if sports dynamics shift (e.g., NIL theories) .
- Live betting/product: Strong momentum across MLB/NBA; Simplebet integration to drive top‑of‑market live; micro‑betting holds managed by bet type .
- Promotions: Efficiency improvements by lowering support to lower‑LTV cohorts; continued decline expected as mix matures .
- M&A/Capital allocation: Opportunistic tuck‑ins that reduce cost (Simplebet, SportsIQ); programmatic buybacks; debt market presence for flexibility .
- Regulatory: Tax increases risk illegal market share; IL transaction fee announced after Q1 (effective Sep 1, 2025) .
Estimates Context
- Q1 2025: Revenue $1.409B vs consensus $1.426B* (slight miss); Primary EPS $0.12 vs consensus −$0.070* (beat)*.
- Q4 2024: Revenue $1.393B vs consensus $1.394B* (in line/slight miss); Primary EPS $0.14 vs consensus −$0.176* (beat)*.
- Q3 2024: Revenue $1.095B vs consensus $1.111B* (miss); Primary EPS −$0.17 vs consensus −$0.410* (beat)*.
Values marked with * retrieved from S&P Global.
Implications: Street likely revises up EPS trajectory (non‑GAAP primary EPS) while keeping revenue cautious given outcome volatility narrative; Q2 >$200M Adjusted EBITDA may prompt upward near‑term EBITDA revisions .
Key Takeaways for Investors
- Core drivers strengthening: rising structural hold, promo efficiency, and live/parlay mix support margin trajectory, even as outcomes fluctuate .
- FY25 guide reset reflects outcomes and policy headwinds, not deterioration in fundamentals; management described March impact as random and transitory .
- Q2 setup constructive: revenues ~+25% YoY and Adjusted EBITDA >$200M guide could be a positive catalyst for estimate revisions and sentiment .
- Live betting is a multi‑year growth vector; acquisitions should accelerate product capability and adoption across NFL/NBA/MLB .
- Watch regulatory developments: IL fee post‑Q1 underscores tax pass‑through strategies; state tax hikes risk illegal market share growth; monitor Maryland/Illinois effects .
- Capital allocation turning constructive: ongoing buybacks; potential debt market access adds flexibility as FCF scales .
- Trajectory: expect continued adjusted gross margin improvement (~46% FY25), structural hold approaching/above ~11% in H2, while consensus EPS likely moves higher given repeated beats .
Notes:
- All S&P Global consensus values are marked with * and sourced via S&P Global.