DraftKings Inc. (DKNG) Earnings

Management highlights

- Overall Business Performance * DraftKings delivered a strong Q2 2026, with customer acquisition, retention, and engagement all exceeding internal expectations. Total customer acquisition grew nearly 75% year-over-year, with the lowest enterprise-wide customer acquisition cost (CAC) since Q1 2025, and CAC came in 25% better than planned despite a 10% increase in total customer acquisition spend to capture incremental unplanned demand. * Monthly unique payers grew 9% year-over-year, and 6% when excluding one-time World Cup-only customers. Total sports consumer volume (sportsbook handle + predictions volume) increased 15% year-over-year. 100% of new Q2 customers are North America-based, and all new customers are expected to generate long-term gross profit for the business. * Spanish language app functionality expanded successfully, helping the company reach new underpenetrated customer segments. - Super App and Predictions Strategy * The company is executing on its super app strategy launched at the March 2026 investor day, driving massive new customer acquisition in U.S. states without regulated online sports betting (OSB). A full app upgrade is scheduled for August 2026 to deliver a best-in-class offering across all verticals ahead of the 2026 NFL season. * DraftKings is the only fully vertically integrated prediction market operator in the U.S. today, owning the brokerage, exchange (DKX, launched in June 2026), and market-making layers in-house. This structure allows the company to capture the full value chain economics, creating a structural lifetime value (LTV) advantage over competitors. * Management confirmed there is minimal to no cannibalization of existing sportsbook revenue from predictions: only ~1% customer overlap with the largest competing prediction market in regulated OSB states, and 80-90% of prediction volume in OSB states comes from professional betting syndicates/institutional traders that were not active on DraftKings sportsbook, making predictions a fully incremental growth opportunity. * DraftKings received approval as a Futures Commission Merchant (FCM) from the National Futures Association in July 2026, positioning the business to expand content depth, improve customer experience, and capture more customer lifetime value. - Cost and Capital Discipline * Management maintained a disciplined approach to cost management in Q2, with declining adjusted G&A and improved operating efficiency. Capital allocation remains focused on high-return long-term growth opportunities, with cost efficiency a sustained company priority.

Guidance

- Management maintained the previously issued full year 2026 guidance range, with total revenue expected between $6.5 billion and $6.9 billion, and adjusted EBITDA expected between $700 million and $900 million. The full year adjusted EBITDA range already includes the planned $200 million to $300 million in incremental predictions investment budgeted for 2026. - The core business is currently tracking to generate ~$1 billion in adjusted EBITDA in 2026, exceeding initial guidance expectations, with upside potential from stronger-than-expected core performance. Management has not adjusted the full year guidance to reflect this potential upside, as the incremental core earnings are expected to offset any higher-than-planned predictions investment.

Segment performance

Core Sportsbook & iGaming: Generated $115 million in adjusted EBITDA for Q2 2026. Sportsbook handle grew 11% year-over-year, with parlay handle mix continuing to rise; total NBA handle grew 7% year-over-year, and parlay mix increased 400 basis points. World Cup sportsbook handle was approximately 6x higher than the 2022 World Cup, and 4.5x higher on a same-state basis. Normalized for sport outcomes and incremental customer acquisition spend, core revenue increased 10% year-over-year. Adjusted G&A expense declined 6% year-over-year, and adjusted operating expenses excluding external marketing and predictions investment improved year-over-year. The core business is on track to generate ~$1 billion in adjusted EBITDA for full year 2026. iGaming saw better-than-expected performance in Q2, driven by the successful Lightning Link game launch and Flex Spins promotional feature, with better-than-expected customer acquisition and stabilized market share after several quarters of declines. Predictions: Over 600,000 customers have engaged with the offering year-to-date, with adoption outpacing management expectations. Annualized total volume traded grew nearly 5x from $2.3 billion in April to $11 billion in July. Combos, a popular customer offering, already account for ~20% of total predictions consumer volume. Customer acquisition cost for predictions is well below that of sportsbook customers, while early volume per customer and month-over-month retention metrics match sportsbook customer levels.

Risks & headwinds

- Short-term profitability can be volatile due to unpredictable sport outcomes: Q2 2026 adjusted EBITDA was negatively impacted by customer-friendly outcomes in June, particularly the Knicks championship win that had an outsized impact on DraftKings' largest regulated sportsbook state. - The regulatory framework for prediction markets remains uncertain, leading management to take a more cautious near-term approach to customer acquisition investment until regulatory clarity improves. - Increased promotional investment from competitors could create near-term pressure on market share and profitability, though management notes historical fluctuations in competitive promotional spend have not had a material long-term impact on DraftKings' performance.

Analyst Q&A

• Q: Why can DraftKings capture a different, non-professional customer base for predictions than existing competitors, and are there any limitations to your vertically integrated offering? /

  A: In states with established regulated OSB, most prediction volume does come from professional syndicates that are not current DraftKings sportsbook customers, representing incremental demand. In unregulated states like California and Texas where DraftKings does not have an OSB offering, DraftKings attracts a retail customer base identical to its existing sportsbook customer profile. DraftKings' integrated platform enables more differentiated content, promotions, and customer experience than pure-play prediction competitors, with no structural limitations to its offering.

• Q: Will DraftKings exceed its planned $200-$300 million 2026 predictions investment if customer acquisition remains stronger than expected? /

  A: DraftKings is data-driven, and will increase investment if return on investment justifies it. The company already has a large existing national marketing footprint that benefits predictions at incremental low cost, so existing marketing spend now reaches new customers in previously inaccessible states. In Q2, DraftKings already invested 10% more than planned in customer acquisition, achieving 25% better CAC than expected, so the company will continue to adjust spend based on performance.

• Q: What is the structural advantage of DraftKings' fully vertically integrated prediction market model? /

  A: Vertical integration follows the same successful playbook DraftKings used for sportsbook: owning all components of the value chain lets DraftKings capture more unit economics, which translates to higher customer lifetime value. Higher LTV enables more customer acquisition investment, creating a growth flywheel. Full control over the platform also lets DraftKings innovate and roll out new differentiated product features faster than competitors that rely on third-party infrastructure, creating sustained competitive advantage.

• Q: What is driving improved iGaming performance, and how do you expect iGaming to trend for the rest of 2026? /

  A: Recent iGaming improvements have been driven by the successful launch of the popular Lightning Link online slot game, and the differentiated Flex Spins promotional feature that lets customers apply bonus spins to any game (a capability most competitors lack). iGaming customer acquisition was better than expected in Q2, and market share has stabilized after several quarters of declines. Management expects iGaming to begin gaining share in the second half of 2026.