DraftKings Inc. Q4 FY2024 earnings call

• 2024 results: Revenue grew 30% to $4.8B, adjusted EBITDA $181M, free cash flow positive, acquired 3.5M new customers with low CAC, total customer base 42% YOY to 10.1M.
• 2025 focus areas: Extend lead in live betting via acquisitions like Simplebet, Sports IQ Analytics, Mustard Golf; grow and integrate emerging verticals (e.g., Jackpocket); intelligently deploy capital with focus on maximizing shareholder returns through options like optimizing capital structure and returning capital to shareholders.
• First quarter 2025 performance: Strong start with revenue and adjusted EBITDA exceeding expectations, Sportsbook hold percentage at 11% in January and 13% month-to-date through February 11, Super Bowl was a successful acquisition and engagement event with DraftKings Sportsbook app at #1 in App Store sports category and $436M Sportsbook handle.

In 2024, DraftKings saw revenue increase 30% year-over-year to $4.8 billion. Adjusted EBITDA improved to $181 million year-over-year, and free cash flow was positive for the first time. In the fourth quarter of 2024, revenue was $1.393 billion (13% year-over-year growth) and adjusted EBITDA was $89 million. The digital lottery courier vertical (Jackpocket) benefited from the Mega Millions jackpot reaching $1.2 billion. The Sportsbook hold percentage improved, with an NFL parlay handle mix improving over 600 basis points year-over-year. Revenue contribution breakdown wasn't explicitly given by segment, but key segments include Sportsbook, iGaming, and the emerging digital lottery courier segment.

• Fiscal year 2025 revenue guidance raised to $6.3 billion to $6.6 billion (32%-38% YOY growth) due to investments in live betting. Adjusted EBITDA guidance reaffirmed at $900 million to $1 billion.
• Expect structural Sportsbook hold percentage of approximately 11%, Sportsbook net revenue margin 7% to 7.5%, adjusted gross margin 46% to 47%, stock-based compensation expense ~6% of revenue, and free cash flow of approximately $850 million.

• Handle growth industry slowdown in fourth quarter, potentially masked by factors like fewer NFL games or election distraction.
• Regulatory uncertainties and changes in tax rates or legalization of new markets could impact performance.
• Volatility in Sportsbook hold percentage and promotional intensity fluctuations affecting margins.

Q: Hi, good morning everyone. And thank you for taking my question. Jason or Alan, I wanted to start off with trends on the volume and handle growth side of the business. So we saw a handle growth across the industry slow a bit in the fourth quarter. And I just wanted to know how much of a concern is that for you? What do you think can drive reacceleration in 2025? And is a pickup necessary to kind of reach your outlook as you stated here.

A: Thanks, Shaun. Appreciate the question. So definitely, a lot of factors, I think can affect numbers that really are kind of masking reality. So not a huge thing. But for example, in the fourth quarter, there was one less NFL game this year than the year -- or excuse me, in 2024 versus '23. So things like that can make a difference. But we think probably the biggest impact was just distraction around the election. Handle growth is still good, but it was a little less than what we are seeing now. I mean the reason I think we have confidence in '25 is we've seen a pretty rapid acceleration in handle growth. You saw the same thing with some of the ratings, MBA was down a little bit. It's bounced back quite a bit in the first quarter. So I think same thing on our end, we've seen the handle growth accelerate since the elections pass and especially into the new year.

Q: Hi. Thanks for the incremental detail on the Sportsbook. The net revenue target looks like you're assuming a fairly modest reduction in promotional intensity at lease as a percentage of GGR. If we zoom out, what are some of the major puts and takes that will influence the promotional reinvestment here and how that intensity may evolve longer term?

A: Yes, it's -- sorry, you're talking about 2025.

Q: Yes, 2025 versus 2024. And then I guess if we think about how that will continue to, I guess I would imagine trend lower as the industry matures, but -- just wondering if that's kind of the right case.

A: That's quite a decline in our promotional intensity. So I think maybe our analysts can work with you off-line and help you on that. But it's -- I think we're expecting a pretty meaningful decline in promotional intensity in 2025.

Q: Great. Thank you. Obviously, you started the buyback during a period where there was tougher hold. How does volatility and hold impact your willingness to buy back? And is there any specific approach to buy back either consistent or opportunistic, as we think about how you will deploy capital going forward?

A: Yes, Stephen, I'll take that. We're going to be fairly programmatic with it. we've communicated in the past that we'd like to tie it to our free cash flow, and we're just going to be very consistent quarter-over-quarter.

Q: Thanks good morning everyone. Going back to a question I've asked a whole bunch of times, but it feels more appropriate now which is around in-play betting. Can you just discuss the puts and takes and trajectory around in play in the U.S. as you see it, towards getting to the kind of volume levels that mix that we see, for example, in Europe?

A: Yes. I think that there is a couple of things. One is obviously the product, and we've made a tremendous amount of headway, but also still feel we have a lot more we can do there, very proud that we had the -- by far, industry's highest uptime for markets, including in-play during the Super Bowl. And so that's a big area of focus. Obviously, if the markets aren't up, people can't bet. Secondly, I think beyond the product, really working with the broadcasters and the streamers to try to get low latency broadcast and streams available for customers that want to in-play bet on a more micro basis. It's hard when you are 20, 30 seconds behind it almost makes the experience you have to play just on the app instead of watching the game, which I don't think is as good and certainly not what the broadcasters and leagues want. So that's something, I think that can help, too. So really for us, it is both of those. It's working with the other stakeholders in the industry to help creating an ecosystem that allows the customer to maximize their experience and then making sure on our end, we're building the best products and making sure they're up and running when the customers want to make bets.