DKNG Q1 Earnings Call: Customer-Friendly Outcomes Drive Guidance Lower Despite Product Gains
Fantasy sports and betting company DraftKings (NASDAQ:DKNG) fell short of the market's revenue expectations in Q1 CY2025, but sales rose 19.9% year on year to $1.41 billion. The company's full-year revenue guidance of $6.3 billion at the midpoint came in 1.1% below analysts' estimates. Its non-GAAP profit of $0.12 per share was in line with analysts' consensus estimates.
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Revenue: $1.41 billion vs analyst estimates of $1.46 billion (19.9% year-on-year growth, 3.4% miss)
Adjusted EPS: $0.12 vs analyst estimates of $0.12 (in line)
Adjusted EBITDA: $102.6 million vs analyst estimates of $98.92 million (7.3% margin, 3.8% beat)
The company dropped its revenue guidance for the full year to $6.3 billion at the midpoint from $6.45 billion, a 2.3% decrease
EBITDA guidance for the full year is $850 million at the midpoint, below analyst estimates of $910.4 million
Operating Margin: -3.3%, up from -11.8% in the same quarter last year
Monthly Unique Payers: 4.3 million, up 900,000 year on year
Market Capitalization: $17.97 billion
DraftKings' first quarter performance was shaped by a combination of increased product adoption and the impact of unpredictable sports outcomes. CEO Jason Robins explained that while product enhancements led to higher sportsbook hold percentages and more efficient promotional spending, customer-friendly results during March Madness significantly reduced actual hold relative to expectations. Robins emphasized, 'If not for customer-friendly sport outcomes in March, we would be raising our fiscal year 2025 revenue and adjusted EBITDA guidance.' The company also saw growth in live betting and improved efficiency in marketing, as recent acquisitions began to contribute positively to operational results.
Looking forward, DraftKings' revised guidance reflects ongoing uncertainty around sports outcomes, evolving state tax and regulatory environments, and continued emphasis on product innovation. Management highlighted the company's commitment to optimizing promotional strategies and leveraging artificial intelligence (AI) to drive both revenue and operational efficiencies. CFO Alan Ellingson noted, 'We continue to expect sports book net revenue margin of 7% to 7.5% as we anticipate higher structural sports book hold percentage and increased promotional efficiency to offset the impacts from customer-friendly sports outcomes year-to-date.' The company expects to further integrate recent acquisitions and capitalize on advancements in live betting and AI-driven initiatives, while monitoring regulatory developments and market maturity across key states.
Management attributed quarterly revenue growth and margin improvement to product-driven gains and promotional discipline, offset by unfavorable sports results and regulatory changes.
Live betting acceleration: DraftKings saw a significant increase in live betting activity, with live handle surpassing 50% of total handle for the first time. This shift was attributed to recent product improvements and acquisitions, particularly in live betting technology, which management believes will continue to drive engagement and future growth.
Product mix and parlay adoption: The company reported a higher mix of parlay bets, both among new and existing customers, contributing to increased sportsbook hold percentages. Management described this as a key lever for profitability and noted that customers continue using parlay products even after promotional incentives subside.
Promotional spend optimization: DraftKings continued to reduce promotional reinvestments as a share of gross gaming revenue, reflecting the maturation of customer cohorts and more targeted marketing strategies. Management expects this trend to persist as newer states mature and the customer base becomes less reliant on promotions.
AI integration and operational efficiency: The company has expanded its use of AI across business functions, improving both customer service and internal productivity. Management highlighted cost reductions and efficiency gains, with CEO Robins describing AI adoption as a "company-wide movement" that is reshaping how teams approach operational challenges.
Regulatory and tax headwinds: Increases in state tax rates, such as in Maryland, and the exit of Jackpocket operations in certain markets negatively affected quarterly results. DraftKings is closely monitoring regulatory risks as states consider new taxes or changes that could impact profitability and competitive dynamics.
DraftKings expects future performance to be driven by product innovation, operational efficiency, and market responses to regulatory and sports outcome variability.
Expansion of live and in-play betting: Management believes growth in live betting, driven by technology investments and improved user experiences, will be a major contributor to handle and revenue. The company is targeting continued increases in live handle mix, inspired by higher adoption rates in more mature international markets.
AI-driven operational gains: DraftKings is scaling its use of AI to enhance both customer-facing products and internal operations, aiming for efficiency improvements in areas such as customer service and risk management. Management expects these initiatives to reduce costs and support margin expansion, while also informing product development and betting models.
Regulatory and tax environment: The company anticipates ongoing headwinds from state tax rate increases and evolving regulatory requirements. Management is focused on mitigating these impacts through product optimization, cost control, and advocacy to ensure a favorable operating landscape, while recognizing the risk of further tax changes and competition from illegal markets.
In upcoming quarters, the StockStory team will be watching (1) the continued growth and profitability of live and in-play betting, (2) the impact of AI-driven operational efficiencies on margins and customer experience, and (3) the company's ability to navigate regulatory and tax changes across key states. Progress in integrating recent acquisitions and expanding new product offerings will also be important indicators of execution.
DraftKings currently trades at a forward P/E ratio of 22.2×. Should you double down or take your chips? Find out in our full research report (it's free).
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