DraftKings has released its financial results for the third quarter of 2024. The company reported impressive revenue growth, with total revenue reaching $1.1 billion, marking a 39% year-on-year increase. However, despite this revenue surge, the company’s adjusted EBITDA showed a loss of $58.5 million, though significantly reduced compared to the $153.4 million loss reported in the same period last year. Nonetheless, net losses grew slightly, rising from $286.6 million in Q3 2023 to $298.6 million in Q3 2024.

DraftKings’ Q3 2024 Financial Results: Revenue Growth, Increased Losses, and Future Projections

Revenue and Cost Analysis: What’s Driving the Numbers?

DraftKings’ strong revenue growth is a testament to its expanding market presence and user engagement. However, the company also faced higher costs that contributed to its increased quarterly loss. Notably, the cost of revenue increased by nearly $200 million, reaching a total of $742.4 million this quarter. This rise in expenses is tied to higher payouts and operational costs associated with scaling its sportsbook and iGaming offerings.

Breakdown of Key Expenses:

• General and Administrative Costs: Up 59.2% to $208.1 million, reflecting investments in infrastructure and expanding operations.
• Product and Technology Expenditures: Increased by 16.4% to $103.6 million, driven by the continued development of DraftKings’ digital platforms.
• Sales and Marketing: Relatively stable, with a modest 8.5% increase to $339.9 million, indicating efficient marketing spend focused on retaining and engaging users.

While operating expenses grew across multiple areas, DraftKings’ ability to control marketing costs suggests a strategic focus on customer acquisition efficiency and improved return on promotional investments.

Player Data Insights: Monthly Unique Players and Revenue per User

A critical metric for DraftKings is the performance of its Monthly Unique Players (MUPs). The platform reported a 55% increase in MUPs, bringing the average to 3.6 million players. However, it’s important to note that this surge was significantly influenced by DraftKings’ acquisition of Jackpocket, a digital lottery app. Excluding Jackpocket, MUPs were up by 27%, highlighting organic growth in user engagement.

Impact of Jackpocket on Average Revenue per User:

While player numbers have grown, the average revenue per MUP dropped by 10% to $103. This decline can be attributed to the lower spending behavior of Jackpocket’s user base compared to traditional DraftKings customers. However, excluding the impact of Jackpocket, the average revenue per MUP actually increased by 8% year-on-year, indicating strong engagement from core users.

Market Expansion and New State Launches

During the third quarter, DraftKings continued to expand its footprint in the U.S. market. The platform was operational in 25 states and Washington D.C., covering nearly 49% of the U.S. population. Additionally, DraftKings’ iGaming services were live in five states, with the potential to expand into seven states where iGaming is legal.

Future Expansion Plans:

• Missouri: DraftKings has expressed interest in entering the Missouri sports betting market following its legalization.
• Puerto Rico: The company plans to launch operations pending regulatory approval, expanding its reach beyond the continental U.S.
• Ontario: Both sports betting and iGaming services continue to thrive in the Canadian province, contributing to DraftKings’ international growth strategy.

Revised 2024 Fiscal Year Guidance: A Reflection of Market Realities

Despite a strong third quarter, DraftKings adjusted its 2024 fiscal year revenue guidance downward to a range of $4.85 billion to $4.95 billion, down from the previous forecast of $5.05 billion to $5.25 billion. Similarly, the adjusted EBITDA guidance was lowered to $240 million to $280 million, from the initial range of $340 million to $420 million.

Factors Influencing the Revised Guidance:

DraftKings attributed the adjustment to customer-friendly outcomes in sports betting during the early part of Q4 2024, especially during the NFL season. Higher-than-expected payouts due to favorable game outcomes impacted profitability, despite an overall increase in betting volume. According to the American Gaming Association, betting figures were up, with $35 billion wagered in the current NFL season compared to $26.7 billion last season.

Stock Market Reaction to Q3 Results and Revised Guidance

Following the release of the Q3 results and revised fiscal guidance, DraftKings’ stock price experienced a dip. As of the latest pre-market trading data, shares were priced at $36.90, down 5.3% from the $38.98 closing price on November 7. The market reacted to the company’s adjusted revenue forecast, reflecting investor concerns over future growth potential amid rising costs.

Looking Ahead to 2025: Ambitious Growth Targets

Despite the tempered outlook for 2024, DraftKings remains optimistic about the future. The company set its 2025 fiscal year revenue guidance at $6.2 billion to $6.6 billion, representing an average 30.6% increase over its 2024 forecast. This optimistic guidance aligns with DraftKings’ strategic focus on expanding market share and enhancing profitability.

CEO and CFO Insights:

• Jason Robins, CEO and Co-Founder, noted that the strong performance in Q3 was driven by the return of NFL and college football, which boosted user engagement. The company plans to leverage this momentum by adding new live betting features and expanding into NBA markets.
• Alan Ellingson, CFO, highlighted improvements in customer acquisition strategies and sportsbook profitability. He stated that DraftKings is on track to achieve $900 million to $1 billion in adjusted EBITDA for 2025, driven by efficient operational strategies and structural improvements.

Conclusion: The Financial Results

DraftKings’ Q3 2024 financial results reveal a company navigating the complexities of rapid growth, market expansion, and fluctuating user behavior. While revenue growth remains strong, rising costs and strategic investments have impacted short-term profitability. However, with ambitious growth targets for 2025 and continued market expansion, DraftKings is positioning itself to achieve long-term profitability.

FAQs About DraftKings’ Q3 2024 Financial Results

1. What were DraftKings’ total revenue and adjusted EBITDA for Q3 2024?

DraftKings reported $1.1 billion in total revenue for the third quarter of 2024, which represents a 39% year-on-year increase. However, the adjusted EBITDA came to a loss of $58.5 million, significantly reduced from the $153.4 million loss reported in Q3 2023.

2. Why did DraftKings’ net loss increase in Q3 2024 despite higher revenue?

Despite a rise in revenue, DraftKings’ net loss grew slightly from $286.6 million in Q3 2023 to $298.6 million in Q3 2024. This was primarily due to higher operational costs, including a $200 million increase in cost of revenue, along with elevated expenses in general, administrative, and technology sectors.

3. How has DraftKings’ player base grown in Q3 2024?

DraftKings experienced a 55% increase in Monthly Unique Players (MUPs), reaching an average of 3.6 million players. This growth was influenced significantly by its acquisition of Jackpocket, a digital lottery app. Excluding Jackpocket, the increase was 27%.

4. What impact did Jackpocket have on DraftKings’ average revenue per player?

The addition of Jackpocket users led to a 10% decrease in average revenue per MUP, dropping to $103. This is because Jackpocket users typically spend less than traditional DraftKings customers. Without Jackpocket, the average revenue per MUP increased by 8% year-on-year.

5. In which states is DraftKings currently operational?

As of Q3 2024, DraftKings is live in 25 states and Washington D.C., covering approximately 49% of the U.S. population. Its iGaming platform is available in five states, with plans to expand as additional states legalize online gaming.

6. What are DraftKings’ plans for future market expansion?

DraftKings is planning to enter the Missouri sports betting market following its legalization. Additionally, it intends to launch in Puerto Rico pending regulatory approval.

7. Why did DraftKings lower its 2024 fiscal year revenue guidance?

DraftKings revised its 2024 fiscal year revenue guidance down to $4.85 billion to $4.95 billion, citing the impact of customer-friendly sports outcomes during the NFL season. Increased payouts due to favorable game outcomes led to adjustments in profitability forecasts.

8. How did the market react to DraftKings’ Q3 financial results and adjusted guidance?

Following the announcement of Q3 results and the revised fiscal guidance, DraftKings’ stock price dipped to $36.90, reflecting a 5.3% decline from its previous close. This decrease was driven by investor concerns over adjusted revenue forecasts.

9. What is DraftKings’ outlook for 2025?

DraftKings is optimistic about 2025, setting its revenue guidance at $6.2 billion to $6.6 billion, representing an average growth of 30.6% over 2024 projections. The company also aims to achieve $900 million to $1 billion in adjusted EBITDA.

10. What strategies is DraftKings implementing to drive growth in 2025?

DraftKings plans to enhance its sportsbook app with live betting features and expand into new NBA markets. The company is focusing on optimizing customer acquisition, promotional strategies, and increasing its structural sportsbook hold percentage to drive sustainable revenue growth.