Draftkings Inc Q4 2024 Earnings Call Transcript

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

Question: Shaun Kelley - BofA Global Research (US) - Analyst : 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.

Question: Shaun Kelley - BofA Global Research (US) - Analyst : Great. And if I could, just a follow-up on the strategic side, Jason. I wanted -- there's been a lot of news flow out there and buzz around events contracts and prediction markets entering the sports landscape. So appreciate it's very early here, and this has been a moving target. But just sort of what's DraftKings initial take here? Is this something you'd get into? Or what can kind of project or differentiate you from that kind of offering?

Question: Shaun Kelley - BofA Global Research (US) - Analyst : Thank you.

Question: Stephen Grambling - Morgan Stanley & Co. LLC - Analyst : Hey. 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 least 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? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 14, 2025 / 1:30PM, DKNG.OQ - Q4 2024 Draftkings Inc Earnings Call

Question: Stephen Grambling - Morgan Stanley & Co. LLC - Analyst : Yeah, 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.

Question: Stephen Grambling - Morgan Stanley & Co. LLC - Analyst : Got it. So I'll follow up with that. Maybe then one more that I'll sneak in. 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?

Question: Stephen Grambling - Morgan Stanley & Co. LLC - Analyst : Great. Thank you.

Question: David Katz - Jefferies - Analyst : 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 US as you see it, towards getting to the kind of volume levels that mix that we see, for example, in Europe?

Question: David Katz - Jefferies - Analyst : Perfect. And if I can just follow up quickly for Alan. My sense is there may have been an urged to raise the guidance given the really strong start

Question: David Katz - Jefferies - Analyst : Appreciate it. Thank you.

Question: Carlo Santarelli - Deutsche Bank - Analyst : Hey, guys. Good morning. Jason, Alan, whoever wants to take this one. I think if you just look at the 35% revenue guidance, and factor in kind of the improvement in structural hold. From a gross perspective, you kind of have a 17% head start on OSB revenue for the year. I would imagine that the handle component plus the promotional savings and the impact that would have on your net revenue is going to be -- should amount to something that's slightly higher than the 35% aggregate target with a little bit of drag from perhaps OSB and obviously, some moving parts in the other line? Is that a fair kind of reconciliation? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 14, 2025 / 1:30PM, DKNG.OQ - Q4 2024 Draftkings Inc Earnings Call

Question: Carlo Santarelli - Deutsche Bank - Analyst : Helpful. Thank you. And then if I could, just one follow-up on the adjusted sales and marketing. Clearly, some activity later in the year, some acquisition activity, et cetera, that kind of drove those costs up. year-over-year. How are you guys kind of thinking about that line for 2025? Is that something we could expect could come down somewhat or even perhaps meaningfully as we move through the year?

Question: Carlo Santarelli - Deutsche Bank - Analyst : Helpful. Thank you, both

Question: Robin Farley - UBS - Analyst : Thank you. Just looking at your guidance, this is, I think, the second quarter in a row, you raised revenue guidance for '25, but the EBITDA guidance hasn't changed. And presumably, it's your push into the live betting space. Can you help us think about what that would be adding presumably to 2026? Thanks.

Question: Robin Farley - UBS - Analyst : Okay. And then as a quick follow-up, I think it was in your shareholder letter. You mentioned exploring opportunities in the debt markets now that you have cash flow. Is the suggestion there? Would that be or to use for additional share repurchase? Or kind of how should we think about that opportunity to use debt? Thanks.

Question: Robin Farley - UBS - Analyst : Okay, great. Thank you.

Question: Robert Fishman - MoffettNathanson LLC - Analyst : Hi. Good morning. Given the continued strength in customer acquisition, can you share more about the current levels of potation penetration in some of the older vintage states? And how that compares to some of your newer states? And maybe just the runway for higher penetration in the years ahead.

Question: Robert Fishman - MoffettNathanson LLC - Analyst : And maybe a quick follow-up then. Can you discuss the ROI of your sponsorship strategies. You saw that record sign-up from the Tyson, Paul Netflix fight. So how does this change your approach thinking about 2025?

Question: Ben Miller - Goldman Sachs & Company Inc - Analyst : Great. Thanks so much for taking my question. I wanted to follow up on the prior live betting questions, given it was highlighted as an area of focus in '25. I'm just curious how you think about that, how you think about greater adoption of live betting translating into the model between wallet share, growing wallet share with existing customers versus potentially unlocking new customer cohorts.

Question: Ben Miller - Goldman Sachs & Company Inc - Analyst : Great. And then maybe just as a follow-up. I'd love just on the DraftKings+ subscription. Just any learnings early learnings from the pilot in New York and how that translated into any change customer behavior? And the second part of that is just how you think about the economics of that offering between subscribers versus nonsubscribers. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 14, 2025 / 1:30PM, DKNG.OQ - Q4 2024 Draftkings Inc Earnings Call

Question: Ben Miller - Goldman Sachs & Company Inc - Analyst : Great. Thanks so much.

Question: Joe Stauff - Susquehanna International Group, LLP - Analyst : Thank you. Good morning, Jason and Alan. Jason, I was wondering if you can give us what you can, but your summary views on the state budget process thus far in terms of new markets, potential new markets or efforts to reduce gray and black markets and taxes. And then I wanted to ask about how to think about the timing of how you layer in, say, new live products throughout 2025, is it chunky, for instance, before March Madness? Like what -- how to think about that?

Question: Joe Stauff - Susquehanna International Group, LLP - Analyst : Yeah. Just knowing the effort on the live side of things in terms of the new products and so forth --

Question: Joe Stauff - Susquehanna International Group, LLP - Analyst : Yeah, how to think about sort of the timing?

Question: Joe Stauff - Susquehanna International Group, LLP - Analyst : And can I squeeze just one quick one. Could you just remind us, March Madness of last year, overall kind of hold, was that, say, favorable versus unfavorable.

Question: Joe Stauff - Susquehanna International Group, LLP - Analyst : Thanks a lot.

Question: Clark Lampen - BTIG - Analyst : Good morning. Thanks for taking the question. Jason, I wanted to ask a question around structural hold trends. I'm curious if you could give us a little bit more color around the assumption for '25 and what's embedded from a mix shift standpoint? You obviously called out some favorable data points around the Super Bowl with same game parlay trends -- have you seen more traction as that product has improved or shifts in engagement? Just curious if you could give us a framework for the leading edge of player behavior in response to those products and whether that's been consistent with embedded expectations.

Question: Clark Lampen - BTIG - Analyst : That's great. I wanted to ask a second question, address, I guess, capital allocation and potential international expansion. You've been consistent for a while and saying that you think DraftKings should be a global enterprise. But to mention this time around seems a little bit more deliberate. It came up in your prepared remarks. Is that in response to market movements, opportunities that are presenting themselves to you now that weren't there before? Or do you believe this is -- maybe we're at a point in time with the progression of the US business and where you are over the next couple of years that it's now just more of a right place, right time situation. Just curious if you could give us any color on that. Thank you.

Question: Clark Lampen - BTIG - Analyst : Okay. Thank you very much.

Question: Daniel Politzer - Wells Fargo Securities, LLC - Analyst : Hey. Good morning, everyone. First, how do you think about the power of your brand right now for both sports and iGaming. And do you think that there's a digital opportunity, if at all, for additional brands in either vertical? And I think about Golden Nugget getting all the success you had there is an obvious example, but figured I just check on your -- and where your head's at there.

Question: Daniel Politzer - Wells Fargo Securities, LLC - Analyst : Got it. And then I think in your filings, you can kind of backed into what gaming taxes were as a percentage of revenues. I was coming out to something around 37%, 38%. As I think about your adjusted gross margin targets for 2025, are you anticipating that gaming taxes go up? And maybe as you think about kind of that out-year guidance you laid out a while ago, I mean, as we sit here today, what are you baking in, in terms of taxes? And maybe even some of the other costs within your cost of goods sold, like platform cost, market access fees or processing fees.

Question: Daniel Politzer - Wells Fargo Securities, LLC - Analyst : Thank you so much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 14, 2025 / 1:30PM, DKNG.OQ - Q4 2024 Draftkings Inc Earnings Call

Question: Jed Kelly - Oppenheimer & Co. Inc - Analyst : Hey. Great. Thank you for taking my question. It seems like your Jack pocket cross-sell is being pretty effective -- but does that give you a sense that you want to like invest more in Jack pocket in states where sports betting or iGaming is not legal. And I know you've recently just touched on the NBA product earlier. Can you give us an update on where you think your NBA product is relative to your chief competitor? Thanks.

Question: Jed Kelly - Oppenheimer & Co. Inc - Analyst : Thank you.

Question: Brandt Montour - Barclays - Analyst : Good morning, everybody. Thanks for taking my question. Jason, I want to drill in on one of the comments you made in your prepared remarks that the long-term ceiling for hold is higher than you thought. Could you just maybe flesh that out for us? Is that just a mix comment? Is that a comment that you just sort of see your chief competitor sort of growing their parlay mix ever higher. But just the ceiling part is the part I'm focused on.

Question: Brandt Montour - Barclays - Analyst : Okay. Great. And then just a quick follow-up on iGaming. Curious if you're having any concerns about what you're seeing in the promotional environment out there. if that's something that could get -- if that could heat up further if we don't get any new state legislation over the next couple of years?

Question: Barry Jonas - Truist Securities - Analyst : Hey, guys. Good morning. With the new higher Illinois tax in place for a bit now, can you talk about or maybe try to quantify what you've been able to do to offset the hit there?

Question: Barry Jonas - Truist Securities - Analyst : That's helpful. And then just with the Missouri launch, can you maybe frame or even quantify what the investment what we should expect for the investment this year, and it would be helpful to frame it relative to prior similarly sized launches in the past from a CAC perspective? Thanks.

Question: Barry Jonas - Truist Securities - Analyst : Thank you.

Question: Benjamin Chaiken - Mizuho Securities USA - Analyst : Hey. Thanks for taking my questions. First question was on payments. This one might be a little bit out there, but I'll take a shot. With what feels like both social and political acceptance of crypto currency, do you envision a time when DraftKings would accept stable coin to the form of payment, the idea being reduced expenses to move money in and out of wallet among other items, and fully recognizing you may have other fish to fry, but any color you can provide or thoughts would be great. Thanks.

Question: Benjamin Chaiken - Mizuho Securities USA - Analyst : Understood. Appreciate it. And then I hear your comments on the promotional intensity being down from earlier in the call. But is it fair to say that you've allocated a little more to external marketing spend in '25? My guess is that you're allocating some to Jackpocket and then also to embrace the stronger customer acquisition environment we've seen in the last few quarters. I guess, Am I thinking about that correctly? And then any high-level cadence or waiting to the year to be aware of? Thanks.

Question: Benjamin Chaiken - Mizuho Securities USA - Analyst : Very helpful. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 14, 2025 / 1:30PM, DKNG.OQ - Q4 2024 Draftkings Inc Earnings Call