Q2 2024 Earnings Summary
- Strong Customer Acquisition & Efficiency: The management highlighted an 80% year-over-year increase in new OSB and iGaming customers with a more than 40% decline in CAC, indicating effective and scalable growth that can drive continued revenue expansion.
- Robust EBITDA Outlook Driven by Operational Momentum: Despite higher promotional expenses from new customer acquisitions, the company reaffirmed its fiscal year 2025 guidance of $900 million to $1 billion in adjusted EBITDA, supported by strong underlying trends and the positive impact of the Jackpocket integration with its extremely low CAC.
- Effective Mitigation of Tax Headwinds: The introduction of a gaming tax surcharge in high-tax states is designed to offset excessive tax burdens (e.g., New York’s 51% tax rate) by effectively normalizing to around 20%, which helps protect margins while allowing continued investment in growth and market share.
- High State Tax Pressure Risk: In markets like New York, where taxes reach 51% on gross revenue, if the proposed surcharge strategy fails or doesn’t sufficiently offset the excess tax burden, margins could be significantly depressed.
- Negative EBITDA Impact from Promotional Costs: The heavy reliance on promotional spending to acquire new customers creates considerable EBITDA headwinds—even though customer acquisition is strong, the associated new customer promos can drag overall profitability in the near term.
- Dependence on Sustained Customer Acquisition: The business model depends on continuous, robust customer acquisition and retention. Any slowdown in this momentum or adverse changes in customer behavior could undermine revenue growth and worsen profit margins.
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Surcharge Impact
Q: What's surcharge effect on EBITDA?
A: Management explained they will set the fee so that taxes above 20% are offset, especially in high-tax states like New York (with a 51% tax), aiming to recapture lost EBITDA in FY 2025. -
Margin Impact
Q: Do high tax states lower margins significantly?
A: Yes, margins are notably lower in high-tax states; for example, New York’s 51% tax adversely affects contribution margins compared to states closer to 20%. -
Customer Acquisition Strategy
Q: How flexible is spending on new customer acquisition?
A: They reported an 80% increase in new customers with a 40% drop in CAC, and management emphasized their flexible, data-driven marketing spend that can quickly adjust if conditions change. -
Jackpocket Contribution
Q: How is Jackpocket impacting growth?
A: The integration of Jackpocket is viewed as a strong contributor with extremely low CAC, and its performance is expected to drive positive adjusted EBITDA in fiscal 2025. -
iCasino Performance
Q: Is iCasino materially contributing to MUP growth?
A: Management noted that while iCasino (specifically GNOG) is smaller than the core DraftKings brand, it is making a material contribution, with cohort LTV trends showing stronger performance from early players. -
NFL Season Product Outlook
Q: How will products perform this NFL season?
A: They described significant backend and feature improvements—including faster page loads and enhanced bet-and-watch experiences—which are expected to bolster product performance during the high-activity NFL season. -
Tribal Partnership Momentum
Q: Are tribal partnerships expanding market access?
A: There is clear momentum, with partnerships already in place and growing interest among tribal operators, which may gradually expand their TAM despite varied state timelines. -
Customer Acquisition Drivers
Q: What drives efficient customer growth?
A: Expanding into more states has increased marketing efficiency by delivering uniform costs nationally, which enhances both new and existing customer acquisition and improves overall profitability.