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DraftKings has raised full-year guidance after beating analyst estimates to report revenue of $770m in Q1 2023.

Topline numbers

Revenue soared 84% year-on-year to $770m. Analyst estimates were closer to $704m.

DraftKings said this was driven by the efficient acquisition of new customers and a higher hold percentage as driven by product innovation.

The operator also decreased promotional spend in more mature US states.

Despite the reduction, sales and marketing costs rose by 21.1% to $389.1m.

DraftKings reported a Q1 loss of $389.8m, a 24.4% reduction on the $515.6m loss recorded in the same period of last year.

Adjusted EBITDA came in at negative $221.6m, which was improved from a $289.5m loss in the prior-corresponding period.

Stock-based compensation fell by 37.2% in Q1 to $117.4m.

DraftKings CEO Jason Robins said the revenue growth was underpinned by a “relentless focus” on efficiency that positioned the company for continued sustainable success.

Monthly unique players (MUPs) increased to an average of 2.8 million in Q1, representing an increase of 39% over Q1 2022.

Average revenue per MUP, meanwhile, rose by 35% year-on-year to reach $92 in Q1.

This was again attributed to an improvement in the firm’s structural sportsbook hold rate and reduced promotional activity.

News nugget

On a sequential (quarter-on-quarter) basis, however, revenue dropped by 9.9%, in part due to the seasonality impact of the US sporting calendar.

“The seasonality of US sports means that a good Q1 and Q4 is vital to overall performance,” said Regulus Partners analyst Paul Leyland.

“However, for DraftKings and others ‘good’ cannot just mean reaching the barbed wire of EBITDA breakeven, it needs to mean double digit cash flow profitability to make up for the lean content months and the inevitable bad luck months.

“With signs of underlying maturity in early adopting states and little progress on online gaming, the US online sector needs to deliver an awful lot more structural improvements to get out of its self-dug hole,” he added.

Best quote

“We are on the cusp of achieving profitability on an adjusted EBITDA basis.”
DraftKing CEO Jason Robins

Following Leyland’s comments above, DraftKings expects to breakeven in the second quarter and expects to reach almost $150m in positive EBITDA by Q4 2023.

Best question

The best question on today’s earnings call came from Deutsche Bank gaming analyst Carlo Santarelli.

He asked: “Your marketing last year was a little over $800m, how do you think about that number relative to revenue and as a percentage of revenue?”

Robins said the percentage would fluctuate depending on new state launches but that he was comfortable with 10% as the “right” number as communicated at the latest investor day event.

“As revenue grows, it doesn’t mean that marketing needs to continue to go up iteratively,” he added.

CFO Jason Park said that marketing as a percentage of revenue was more of an “external” metric.

“Internally, we’ll continue to look at LTV to CAC as a state goes into its fifth, sixth, or seventh year and adjust the total marketing dollars depending on the adults that are left to be acquired,” he added, suggesting total marketing dollars have declined over time in the more mature states.

Current trading & outlook

The strong Q1 performance saw DraftKings increase midpoint full-year 2023 guidance to $3.19bn, up from $2.95bn.

Adjusted EBITDA guidance for the year was also raised to a loss of $315m, compared to previous forecasts from February of negative $400m.  

“Strong execution across the organisation is showing up in our results,” said DraftKings CFO Park.

“Our efficiency efforts produced clear results as demonstrated by significant year-over-year increases in gross margin and Adjusted EBITDA,” he added.

DraftKings is now live with online sports betting in 21 states following recent launches in Ohio and its home state of Massachusetts. It is live with online casino in five states.

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