Draftkings Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: David Katz - Jefferies - Analyst : I wanted to just raise the issue of M&A, not from a perspective of will you or won't you, but rather what are the boundaries as you see them today, use of equity, tolerance for leverage, trajectory to accretion, anything that you can give us some perspective on?

Question: David Katz - Jefferies - Analyst : And quickly as my follow-up, I wonder if you all share some of the stress that we have over the conversation of hold and structural hold versus actual hold. Are we sure we have the right structural hold? And do we get there and when? I suppose there's a bunch of discussions in there.

Question: Shaun Kelley - BofA Global Research - Analyst : Jason, maybe we could just start with the big question we received across the board is around handle growth and sort of what we've seen broadly across the market. A lot of your commentary in the letter was really positive around that. But just to put a fine point on it, have we seen a deceleration as you kind of move through Q1 and into April as we've lapped North Carolina? And two, do you expect trends to pick up from here? And what would drive that if you do?

Question: Shaun Kelley - BofA Global Research - Analyst : That's great. And just for a quick follow-up, iGaming was an area that sort of tracked a little bit behind what we were thinking and a little bit behind state reported GGR figures if we did the math right. So your comments there, was there something going on as it relates to promotion or bonusing? And sort of what are you doing to kind of get that product on an NGR basis back up to the growth rates you might expect, which might be a little closer to high teens than the 14% that was in the quarter?

Question: Stephen Grambling - Morgan Stanley - Analyst : Maybe following up on both David and Shaun's questions but tying in promotions. It looks like they were down as a percentage of handle year over year. How should we be thinking about where promotions as a percentage of handle should shake out in the year and/or longer term? And any impact you think about that having on handle as well?

Question: Stephen Grambling - Morgan Stanley - Analyst : That's helpful. And maybe an unrelated follow up. In the release and in the letter, you talked about an AI kind of first strategy with the business. Where are the biggest opportunities to leverage and/or deploy AI? Or where is it currently being used? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 09, 2025 / 12:30PM, DKNG.OQ - Q1 2025 Draftkings Inc Earnings Call

Question: Robin Farley - UBS - Analyst : Great. I wonder if you could talk a little bit about your market share in basketball. It seemed like given the strength of the acceleration of your handle growth overall in the quarter, some others talked about softness in handle in basketball. So I wonder if you could tell us a little bit about maybe if there was some share shift there.

Question: Robin Farley - UBS - Analyst : Great. And then just as my follow-up, I wonder if you can help us think about how growth rates should look. You talked about handle being up 16% in the quarter and for the pre '24 states, up 11%. So not a surprise, right, that maybe some of those initial growth rates slow that we should expect that at all. Is there -- can you help us also think about even more -- what that rate of growth looks like sort of over a period of two or three years, right, if we looked at like the 20 states that started in 2021 versus states in 2022 versus 2023, sort of what that rate of sort of maybe maturing handle would look like? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 09, 2025 / 12:30PM, DKNG.OQ - Q1 2025 Draftkings Inc Earnings Call

Question: Brandt Montour - Barclays - Analyst : So first one on OSB. Could you remind us what is implied for structural hold in the second half of '25 guidance, particularly NFL? And maybe talk through the lens of parlay mix. What are you looking for in terms of parlay mix lift year over year in the second half versus the trajectory that you were on as of the first quarter year over year?

Question: Brandt Montour - Barclays - Analyst : That's really helpful, Jason. And then just more of a near-term modeling question. The release says adjusted EBITDA in the 2Q should exceed $200 million. That's a reasonable ways off from what's currently implied in the consensus numbers. So maybe you could just talk about the way that you split up the hold impact between the first quarter and April. And then anything else we should think about in terms of comparisons for the next couple of quarters?

Question: Jordan Bender - Citizens JMP - Analyst : You gave parameters around M&A and how you think about potentially getting that done, but curious to get your thoughts around becoming larger on a global scale through M&A and just more broadly, maybe your updated thoughts around your ambitions for international expansion. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 09, 2025 / 12:30PM, DKNG.OQ - Q1 2025 Draftkings Inc Earnings Call

Question: Jordan Bender - Citizens JMP - Analyst : Great. And then just a follow up. You just gave the back half of the year expected hold. From what I can tell, below 11% in the third quarter above, 11% in the fourth quarter implies a potential slowdown in that growth year over year. Just curious if that's correct, and what could be driving that?

Question: Joe Stauff - Susquehanna - Analyst : Jason, your comment on live betting and the improvement in the product, a lot of those acquisitions, tuck-in acquisitions that you have made have largely occurred within the last year. So just wondering kind of when you felt as though like you've got the live product at a point now where you can really start to accelerate and see growth from that? And then I have a follow-up after.

Question: Joe Stauff - Susquehanna - Analyst : Got you. And then a follow-up on Jackpocket. In terms of the database, can you give us a rough split of the percentage of users in non-OSB states? And do you think you have a path in Texas for them to reconsider your offering there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 09, 2025 / 12:30PM, DKNG.OQ - Q1 2025 Draftkings Inc Earnings Call

Question: Robert Fishman - MoffettNathanson - Analyst : In the letter, you guys talked about beginning to realize efficiency as demand softens in areas such as advertising. So just curious if you can share any levels of the ad efficiencies you've seen to date and talk more about how you can benefit or how that's going to impact your planned advertising spend for the rest of the year.

Question: Robert Fishman - MoffettNathanson - Analyst : And maybe on taxes. Clearly, we saw Illinois increase and with Maryland set to increase, can you just take a step back and share what you've learned about the right strategy to help mitigate future tax increases and how investors should think about the risk for additional states increasing taxes in the year ahead?

Question: Jed Kelly - Oppenheimer & Co., Inc. - Analyst : Just getting to live betting, if that becomes a larger percentage of your handle, would we expect that to handle or reaccelerate, but it'd be at a lower hold because you don't want to maximize your hold on live betting? And then just looking at your R&D, it's up quite a bit. Is that being more deployed to product and development? Or is that from acquisitions? Because we've noticed a huge product improvement in your NBA products, so any color there would be great.

Question: Clark Lampen - BTIG - Analyst : Jason, I wanted to go back to the structural hold topic. And maybe you could help us understand or unpack, I guess, what sort of contributes or drives -- this quarter, I think you guys saw a 300 basis points mix shift towards parlays. Is that largely a function of new cohorts that you're onboarding that are significantly more parlay inclined? Or is it coming largely from your existing player cohorts where you're able to gradually shift them over towards higher-margin bets via retention promo? Or does one of those, I guess, sort of offer you a bigger opportunity or a bigger value driver down the road?

Question: Clark Lampen - BTIG - Analyst : That's helpful. And if I could ask a separate follow-up around AI, I'm curious how much, I guess, you've sort of integrated that tech into the pricing and risk management framework at this stage. Are you using that as a means of sort of better understanding elasticity or capturing inferences from sort of ticket flow on the fly that might be, I guess, a little bit less obvious to a human that was looking at the same data?

Question: Steven Sheeckutz - Citi - Analyst : Now that we're a few months into the launch of DraftKings Plus in New York, I was hoping you could comment on your initial learnings from that offering and if you anticipate maybe expanding that product into other states down the line?

Question: Barry Jonas - Truist Securities - Analyst : I appreciate the chart you made showing the historical resiliency of digital gaming amidst the Great Recession. But I guess as you look at the database today, are there certain segments or cohorts doing better than others worth highlighting?

Question: Barry Jonas - Truist Securities - Analyst : Great. And then just how are you thinking about capital allocation here, specifically share repurchases?

Question: Ben Chaiken - Mizuho Securities USA LLC - Analyst : My first is on external marketing spend. How are you thinking about the magnitude of this spend this year relative to maybe the start of the year? Has it changed at all? And I guess I would preface it with two dynamics as I see it: Number one, Jackpocket exiting Texas; and then number two, the softer digital ad spend environment that you referenced earlier. I guess does the combination of those two change anything for you? And I'm not sure if there's any other dynamics that you would flag or if I captured it all.

Question: Ben Chaiken - Mizuho Securities USA LLC - Analyst : Sorry, maybe just a follow-up there. I guess if its softer digital ad spend, wouldn't that be less expensive for you? And then wouldn't Jackpocket exiting Texas -- go ahead.

Question: Ben Chaiken - Mizuho Securities USA LLC - Analyst : Understood. Makes sense. And then related --

Question: Ben Chaiken - Mizuho Securities USA LLC - Analyst : Understood. That's helpful. And then on -- just one more on Jackpocket. I guess, what's the desire to integrate this into the DraftKings app? And then any updated thoughts on profitability? I think in the past, there was some medium-term kind of bogeys out there you had provided. Should we expect an update here at some point, just given the changes in a few markets?