The chief executive officer of DraftKings Inc. is warning investors that money no longer grows on trees but adding that the Boston-based operator of online sports betting sites is still confident about its future and future win rate with parlay-happy customers.
"The financial world changed in 2022," DraftKings CEO Jason Robins wrote in a letter to shareholders released Thursday. "Gone are the days of 'free' money. Gone are the days when investors would accept outsized losses as long as revenue grew or share increased."
DraftKings has learned this lesson the hard way. While shares of the company are up for the year, they are still trading in the teens, rather than the heights of $70 or more they touched in 2021.
Robins said the tougher times are the sort of business environments "in which great companies separate from the pack," something he is betting DraftKings can do.
"Cohorts continue to be healthy, and we continue to see parlay mix and average leg count increasing, giving us confidence that we will make further gains in our sports betting hold rate in 2023," Robins wrote. "We also expect to produce our first Adjusted EBITDA-positive quarter in the fourth quarter of this year, which sets us up nicely to achieve our first year of positive Adjusted EBITDA in fiscal year 2024 even while investing in new states, and gives us confidence in our long-term margin targets."
Finishing strong
The comments come as investors have indeed become pickier about the financial results of gaming companies and as DraftKings says it is driving toward profitability. Finding ways to win more from customers, and curtail expenses such as free bets and other promotions, are part of that campaign.
DraftKings released its fourth-quarter financial results on Thursday, capping off its fiscal year by reporting $855 million in revenue, an 81% increase from a year earlier. This, the company added, was mostly due to keeping customers and launching its legal sports betting and online casino gaming business in additional states.
DraftKings is now offering retail and online sports betting in 22 states and Canada's most populous province, Ontario. It also offers iCasino in six jurisdictions.
The company said there was an average of 2.6 million monthly unique paying customers during the three months that ended December 31, up 31% from the fourth quarter of 2021. The average revenue per each of these monthly users was $109 for the fourth quarter of 2022, an increase of 42% from a year earlier.
“This increase was primarily due to improvement in the Company’s structural sportsbook hold rate and a continued mix shift into DraftKings’ Sportsbook and iGaming products,” the company added in a press release.
DraftKings has released its Q4 results. The Boston-based bookmaker reported a loss of $242.7M for the three months ended Dec. 31, down from $326.3M a year earlier. For 2022, DK booked a ~$1.4B loss, down from $1.5B for 2021.
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According to the company's fourth-quarter earnings presentation, the online sports betting hold went from 6.5% for 2021 to 7.7% for 2022.
A better win rate could give DraftKings a boost in all its states. DraftKings Chief Financial Officer Jason Park said in his letter to shareholders that the hold improvement was due to a higher mix of parlays and more legs, on average, as part of those parlays.
"This increased parlay mix and average leg count, as well as other drivers of improved hold, are due to a number of investments we have made, including our in-house data science models, the introduction of more content and parlay options, and an improved user interface for customers to find the bets they want to place and discover new bet types," Park wrote. "We will continue to invest in our trading team and associated tools and capabilities."
The red-to-green show
Even with rising hold and revenue, DraftKings still took a $242.7-million loss for the fourth quarter, albeit an improvement over the $326.3-million hit it took a year earlier. DraftKings lost almost $1.4 billion during 2022, slightly better than the $1.5 billion it burned in 2021.
When adjusting for various costs and expenses, DraftKings reported negative earnings of nearly $50 million for the fourth quarter and $721.8 million for 2022. Both numbers were improvements over their 2021 counterparts.
DraftKings also sees itself heading for greener pastures. That includes the upcoming launch of online sports betting in Massachusetts, its home state.
The company raised its revenue guidance for 2023 to a range of $2.85 billion to $3.05 billion from the previous spectrum of $2.8 billion to $3 billion. It anticipates an adjusted loss of between $350 million and $450 million as well next year, less than its previous guidance of between $475 million and $575 million.
"Adjusted EBITDA was positive on a company-wide basis in October 2022 and was positive for the fourth quarter when adjusting for our launch investments in Maryland and Ohio," Park wrote in his letter to shareholders. "In addition, 18 of the 19 states in which we were live as of December 31, 2022 were contribution profit positive in the fourth quarter, with only recently-launched Maryland producing negative contribution profit."
