DraftKings Inc (DKNG) Q1 2024 Earnings Call Transcript Highlights: Soaring Revenues and ...

• Revenue: $1.175 billion in Q1 2024, a 53% year-over-year growth; FY 2024 guidance raised to $4.8 billion to $5 billion.

• Adjusted EBITDA: $22 million in Q1 2024; FY 2024 guidance updated to $460 million to $540 million.

• Adjusted EBITDA Flow-Through Percentage: 60% in Q1 2024; expected to be 53% for FY 2024.

• Structural Sportsbook Hold Percentage: Increased to 9.8% in Q1 2024, up approximately 150 basis points year-over-year.

• Adjusted Gross Margin: Increased by over 550 basis points year-over-year to 44% in Q1 2024.

• Sales and Marketing Expenses: Decreased by 11% year-over-year.

• Free Cash Flow: Expected to be approximately $400 million for FY 2024.

• Year-End Cash and Cash Equivalents: Projected to be approximately $1.6 billion before funding the acquisition of Jackpocket.

• Warning! GuruFocus has detected 5 Warning Signs with DKNG.

Release Date: May 03, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• DraftKings Inc (NASDAQ:DKNG) reported a 53% year-over-year revenue growth in the first quarter, with an updated revenue guidance midpoint implying 34% growth for fiscal year 2024.

• Successful Sportsbook launches in Vermont and North Carolina, with efficient customer acquisition and expected positive contribution to adjusted EBITDA in the second half of 2024.

• Continued focus on product innovation and customer centricity, leading to excellent customer retention and participation across sports and games.

• Operational efficiency improvements across the organization, with an expected adjusted EBITDA flow-through percentage of 53% for fiscal year 2024.

• Exploration of capital allocation options due to strong free cash flow trajectory, with year-end 2024 cash and cash equivalents projected at approximately $1.6 billion.

Negative Points

• Customer-friendly outcomes in late March and April posed a headwind of $60 million to fiscal year 2024 revenue and $42 million to adjusted EBITDA guidance.

• The ongoing need to balance capital allocation with potential M&A activities, considering the integration and resource requirements.

• Challenges in maintaining competitive pricing and promotional efficiency in a rapidly evolving market.

• Dependence on the successful integration of Jackpocket and other acquisitions to achieve projected growth and market expansion.

• Potential risks associated with legislative changes and tax rate adjustments in various states that could impact profitability and market dynamics.

Q & A Highlights

Q: Can you discuss the impact of the structural Sportsbook hold and its evolution? A: Jason D. Robins, Co-Founder, Chairman & CEO of DraftKings Inc., explained that the structural hold has improved due to better-than-expected bet mix and continued focus on increasing parlay mix and average leg count. He emphasized ongoing efforts to monitor customer metrics and improve product offerings, suggesting potential for further upside in hold percentages.

Q: How is the company capturing marketing efficiencies, and what are the long-term opportunities? A: Jason D. Robins highlighted an efficient first quarter in marketing, with a significant year-over-year decrease in customer acquisition cost (CAC). He attributed this efficiency to optimized performance and growth in the addressable market, crediting the team's efforts in marketing optimization.

Q: What is DraftKings' approach to M&A, particularly with the pending acquisition of Jackpocket? A: Jason D. Robins stated that DraftKings maintains a high bar for M&A, focusing on organic growth paths and considering M&A as one of several levers for deploying capital. He mentioned the importance of integration and resource allocation in evaluating M&A opportunities.

Q: How does DraftKings plan to cross-sell iGaming to OSB users, and what are the investment implications? A: Jason D. Robins discussed the effective strategy of acquiring customers through sports betting and cross-selling them to iGaming, emphasizing the low cost and high efficiency of this approach. He also expressed excitement about the potential for cross-selling lottery products post-Jackpocket acquisition.

Q: Can you provide insights into DraftKings' capital allocation strategy and considerations for returning capital to shareholders? A: Alan Ellingson, CFO of DraftKings, mentioned the company's confidence in its free cash flow trajectory and ongoing evaluations of cash use within the core business. He indicated that returning capital to shareholders is among the options being considered, with more details expected in the next quarter.

Q: What legislative developments are you focusing on for 2024 and 2025, particularly concerning iGaming and sports betting? A: Jason D. Robins outlined the focus on a few large states for sports betting legislation, with particular attention on Texas for 2025. He also anticipated faster legislative movement for iGaming given the untapped population and increasing need for state tax revenues.

These highlights from the Q&A session of DraftKings' earnings call provide insights into the company's operational strategies, market expansion plans, and financial management, reflecting a strong start to 2024 and strategic initiatives for sustained growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.