DraftKings revels in “strong” Q3 as total revenue grows 136%

DraftKings Q3 2022 revenue rose by 136% year on year (YOY) to $502m, according to the US sports betting, igaming, and DFS operator’s latest financial report.

Releasing its report for the period, the Nasdaq-listed firm revealed a 17% decrease in net losses, which reduced to $450.4m during Q3 2022.

DraftKings’ adjusted EBITDA losses shrunk during the Q3 period, falling 15% YOY to $264.2m, down from adjusted EBITDA losses of $313.6m in 2021.

Pro forma costs, inclusive of sales and marketing, product and technology, and general administrative costs, amounted to $584m, a figure down by just under 1% from that reported during Q3 2021.

DraftKings’ B2C segment revenue grew to $493m in Q3 2022, an increase of 161% compared to that generated in Q3 2021.

The operator cited robust customer acquisition and retention, successful launches in additional jurisdictions, and “atypically high hold rates” largely from NFL wagering and reduced promotional intensity as primary reasons for the sharp uptick in revenue.

Monthly unique players (MUPs) increased to 1.6 million during Q3, a YOY increase of 22% compared to 2021.

“This increase reflects strong unique player retention and acquisition across DraftKings’ sportsbook and igaming products as well as the expansion of its sportsbook and igaming products into new jurisdictions, partially offset by a decline in daily fantasy sports MUPs,” DraftKings said.

The YOY increase in MUPs in Q3 was also negatively impacted by the extension of the 2020-2021 NBA season into Q3 2021, while the 2021-2022 NBA season ended in Q2 2022.

Average revenue per MUP (ARPMUP) amounted to $100 during Q3, representing a 114% increase compared to the same period in 2021.  Reasons cited include a “continued mix shift” into DraftKings’ igaming and sportsbook operations, as well as NFL wagering and reduced promotional intensity.

DraftKings CEO Jason Robins was unabashed in his glowing assessment of the Q3 period, citing product enhancements and customer acquisition as key factors in delivering a “very strong” third quarter.

“Our team continued to drive top-line growth through highly effective customer engagement and compelling product and technology enhancements while remaining focused on our path to profitability,” Robins said.

“For the NFL season, we made investments in our mobile sportsbook product, creating a differentiated and fun customer experience, and also realized unique marketing optimization benefits as an operator with truly national scale.”

He continued: “Throughout 2022, we’ve struck the right balance between delivering differentiated top-line growth and driving operating efficiencies.

“We continue to be confident that we will achieve positive adjusted EBITDA in the fourth quarter of 2023 based on the visibility we have into expected state launches,” he added.

Following the results, DraftKings has raised its fiscal year 2022 revenue guidance to a range of between $2.16bn and $2.19bn, from a previous range of between $2.08bn and $2.18bn, announced in Q2 and equating to YOY growth of 67% to 69%.

In tandem with the revision of revenue targets, DraftKings has revised its adjusted EBITDA guidance figures to a loss of between $780m and $800m in 2022, from a prior guidance figure of between $765m and $835m.

Despite the upbeat nature of the results and shrinking adjusted EBITDA losses, Regulus Partners analyst Paul Leyland revealed reservations about the future profitability of DraftKings.

“We remain concerned that topline growth is easy to deliver with unsustainable variable costs running at 138% of revenue – whether these costs can be ‘right-sized’ to a stable revenue figure as cash is burned through remains to be seen,” Leyland stated.

“The key risk for us is that a slowdown in marketing (by far the easiest variable to cut) creates a revenue stall on a cost base which is still too high in other areas,” he added.

Leyland pointed to future growth reducing for DraftKings in igaming and concerns about sportsbook growth in the longer term.

“Launches in Kansas and a further four US territories in the pipeline (Maryland, Ohio, Massachusetts, and Puerto Rico) means that DK’s sportsbook reach will be extended from 37% of the US population to 45%; igaming reach remains a more stubborn 11%, however, across five states,” Leyland said.

“Separately, fighting what looks to be losing battles in California and Florida has cost DK alone around $44m in two years.

“With these big states absent, New York structurally uneconomical, and small states offering fewer economies of scale, the lack of igaming expansion is a major hurdle to finding sufficient high-margin revenue, in our view,” Leyland concluded.

Shares in DraftKings fell as much as 19% in premarket trading on the New York Stock Exchange in the wake of the report’s publication.