DraftKings Earnings: Robust Sales and Profit Outlook Dealt as Platform Wins With Customers

We plan to lift our $26.50 fair value estimate for no-moat DraftKings DKNG to $32, following strong third-quarter results and updated guidance. The company’s technology and product offering are resonating strongly with customers. In fact, revenue grew 57% driven by robust customer retention and acquisition (monthly unique player growth of 40%, with revenue per user up 14%) and mix toward higher hold parlay bets (hold in the quarter was 9.0% versus 7.7% in the full-year 2022). Overall, gross gaming revenue share of sports and iGaming where the company is competing was 33% versus 30% last quarter and 25% last year.

Profitability metrics were outstanding, as older state cohorts are meaningfully profitable and newer jurisdictions are increasingly ramping toward profits at a faster cadence. As evidence, DraftKings’ external marketing costs continue to track down at a double-digit rate, even though new customers are being added at a double-digit rate. In this vein, gross margins were up nearly 300 basis points to 68.8%, and marketing and administrative cost lines leveraged 24.4 and 20.6 percentage points, respectively, to 39.7% and 16.6% of total revenue.

DraftKings gave very strong guidance. Revenue for 2023 was increased to around $3.7 billion at the midpoint from $3.5 billion, representing mid-60% growth, and we plan to lift our $3.5 billion forecast toward the new range. Management expects sales growth of 26% in 2024, which assumes stable share in the face of incremental competition, as well as a handful of new states equating to 5% of the U.S. population that are set to launch. We plan to lift our 20% estimate toward DraftKings guidance. EBITDA targets were also lifted for 2023 with losses now guided to $105 million at the midpoint from $205 million previously. And DraftKings is setting 2024 EBITDA for a $400 million profit at the midpoint. We plan to move our 2023 $203 million loss and 2024 $167 million profit EBITDA estimates to management’s updated guidance.