Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- DraftKings Inc (DKNG, Financial) achieved strong and efficient customer acquisition, with new OSB and iGaming customers increasing nearly 80% year-over-year.
- The company plans to implement a gaming tax surcharge in high tax states, potentially increasing adjusted EBITDA in 2025 and beyond.
- The Jackpocket integration is progressing well, with expectations for positive adjusted EBITDA in fiscal year 2025.
- DraftKings Inc (DKNG) reiterated its expectation for $900 million to $1 billion of adjusted EBITDA in fiscal year 2025.
- The Board authorized a share repurchase of up to $1 billion of Class A common stock, reflecting confidence in the business trajectory and future free cash flow generation.
Negative Points
- Fiscal year 2024 adjusted EBITDA guidance was revised down to $340 million to $420 million from the previous range of $460 million to $540 million.
- The increase in customer acquisition costs and promotional expenses is expected to impact EBITDA in the short term.
- Illinois raising its Sportsbook tax rate is a significant factor in the revised EBITDA guidance.
- The company faces potential challenges in implementing the gaming tax surcharge and its impact on customer behavior is uncertain.
- DraftKings Inc (DKNG) continues to face competition from illegal markets, which do not pay taxes and can invest more in product and customer experience.
Q & A Highlights
Q: What is the strategy behind implementing a gaming tax surcharge in high tax states, and how do you anticipate competitors will react?
A: Jason Robins, CEO: We believe this is the best approach for our business. While we can't predict competitors' actions, we think others might come to similar conclusions. We have some time before the surcharge takes effect on January 1, 2025, and we'll see how the market responds.
Q: How should we model the impact of Illinois' increased Sportsbook tax rate if the surcharge isn't implemented?
A: Jason Robins, CEO: The overperformance in customer acquisition, the launch of Washington D.C., and positive trends with existing customers should offset the Illinois tax increase. We still expect $900 million to $1 billion in adjusted EBITDA next year, even without the surcharge benefit.
Q: Are you seeing any changes in the cost to sustain and engage existing players, and is new customer acquisition primarily from new or existing states?
A: Jason Robins, CEO: We are not seeing increased costs for existing players. The new customer acquisition is strong across both new and existing states, with particular strength in the Golden Nugget brand after its migration to the DraftKings platform.
Q: How do you plan to balance higher new user acquisition costs with maintaining profitability, and what if the customer acquisition environment changes?
A: Jason Robins, CEO: We follow a three-year payback rule and data-driven decisions. If the environment changes, we can quickly adjust our marketing spend. Most of our marketing spend is flexible and can be scaled back if needed.
Q: Are there any signs of consumer weakness in older states, and what impact could macro headwinds have on OSB and iGaming?
A: Jason Robins, CEO: We see no signs of consumer weakness. Cohort behavior is strong, and customer acquisition is at an all-time high. Regarding the bet-and-watch experience, we wanted to ensure a high-quality integration, which is why it is launching this season.
Q: What is the thought process behind using a surcharge as a mitigation measure for high tax rates, and have you done any A/B testing?
A: Jason Robins, CEO: We chose a surcharge because it aligns with how other industries handle taxes and maintains transparency with our customers. We haven't done A/B testing, but we will monitor the impact closely once implemented.
Q: How do you view the potential for market access agreements to drive cost savings over the long term?
A: Jason Robins, CEO: There is some room for optimization, but most of our deals are long-term. As these agreements come up for renewal, we may see opportunities for better terms, especially in states with many open skins.
Q: Can you break out the impact of Jackpocket on your MUP increase and discuss the economics of customer acquisition in existing states?
A: Jason Robins, CEO: The MUP increase was about half due to Jackpocket and half due to organic growth. Over time, cohort quality declines, but it tends to stabilize after the first year or two. We monitor this closely to optimize our acquisition strategies.
Q: How do you anticipate the surcharge will affect your customer base, particularly VIPs, and could it shift your mix towards more recreational players?
A: Jason Robins, CEO: We believe our product and customer experience will justify the surcharge for most players. While it may affect VIPs more, we think the overall impact will be manageable and will continue to monitor customer behavior.
Q: What gives you confidence that Jackpocket will contribute positively to adjusted EBITDA in 2025?
A: Jason Robins, CEO: Jackpocket's revenue growth and low customer acquisition costs give us confidence. We expect it to be a positive contributor to adjusted EBITDA in 2025 and beyond, with more updates to come in November.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
