Q3 2024 Earnings Summary
- Robust Customer Retention & Engagement: Customer retention remains strong across both OSB and iGaming—with management highlighting similar retention levels for sports betting and casino customers, and structural hold percentages expected to reach 11% in fiscal 2025. Enhanced reactivation strategies and optimized promotional spend targeting lower lifetime value users suggest a maturing, loyal customer base that can drive higher profitability.
- Promising Fiscal 2025 Guidance & Margin Expansion: Management reaffirmed fiscal 2025 adjusted EBITDA guidance at $900 million–$1 billion alongside a newly introduced revenue guidance range of $6.2 billion–$6.6 billion (reflecting 27%–35% YOY growth). They also expect free cash flow of about $850 million, signaling healthy cash generation that could underpin future share repurchases and further margin improvements.
- Product Innovation & Geographic Diversification: The call emphasized a notable 500 basis point improvement in parlay mix and successful promotional initiatives (e.g., the King of the Court promotion), as well as plans to expand into new markets (e.g., Florida, Missouri, and other states). These product enhancements and expansion opportunities help diversify revenue streams and drive long-term growth.
- Volatile Revenue & EBITDA Impact: The guidance revision due to adverse NFL outcomes and regulatory headwinds (a $250 million revenue and $175 million EBITDA drag) raises concerns that similar external factors may repeatedly disrupt financial performance.
- Customer Acquisition & Promotion Dependence: Heavy reliance on customer acquisition strategies and promotional expenditures—despite being cautious—could pressure margins if acquisition volumes or promotional efficiencies do not meet expectations, thus impacting profitability.
- Regulatory and Market Expansion Uncertainty: Ongoing uncertainty around state regulatory approvals (e.g., Missouri, Florida, and other key jurisdictions) could delay market expansion and revenue growth, representing a risk to the company's expansion strategy.
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Guidance Bridge
Q: What drives the $100M EBITDA gap?
A: Management explains that the $100M EBITDA bridge comes largely from the unpredictable customer acquisition environment rather than fixed costs, relying on strong models of existing cohorts. -
Free Cash Flow
Q: How will FCF be used in 2025?
A: They expect around $850M in free cash flow and plan to use it responsibly, likely through active share repurchases as liquidity grows. -
Retention Rates
Q: How do OSB and casino retentions compare?
A: Retention is similar between OSB and casino customers, with OSB edging slightly ahead thanks to a top-rated iGaming product. -
State Expansion
Q: Which states are targeted for OSB growth?
A: They are looking at markets like Texas, Georgia, Minnesota, New York, and remain cautiously optimistic about Florida as discussions progress. -
Gross Margin
Q: Why are margins steady into '25?
A: Although Q3 saw a 300bps gross margin improvement, high new customer promotions are offsetting further expansion, keeping margins similar. -
Hold Rates
Q: What supports the 11% structural hold?
A: The expected 11% hold is driven by shifts in product mix and improved marketing, with modest upside potential if further enhancements are made. -
Customer Spend
Q: How do new user spends compare to existing?
A: Early data suggest that spending by new users is similar to recent cohorts, indicating consistent quality in customer acquisition. -
Parlay Mix
Q: What caused the 500bps parlay mix increase?
A: Product innovations such as live same-game markets and enhanced player props boosted NFL parlay mix by 500bps, with early signs of similar trends in NBA and baseball. -
Reactivation Strategy
Q: How are inactive users re-engaged?
A: They use targeted CRM initiatives and event-driven promotions—like during NFL season—to re-activate dormant customers and improve engagement. -
Alternative Markets
Q: Are non-sports prediction markets considered?
A: Management sees potential in election-based prediction markets and may explore these ahead of the next presidential cycle, though it isn’t a primary focus now. -
International Expansion
Q: Will DKNG go international soon?
A: International expansion is viewed as opportunistic; strong domestic growth means there is no immediate need, but they remain open to the right opportunities. -
Signup Offers
Q: What shapes changes in signup offers?
A: Increases in nominal signup offers are strategically opportunistic, reflecting adjustments to competitive dynamics and acquisition mix optimization.
Research analysts covering DraftKings.