DraftKings Inc. (DKNG) Q3 2025 Earnings Call Transcript

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Overview

The earnings call indicates a positive outlook for DraftKings with maintained guidance for fiscal year 2025, optimistic revenue and EBITDA projections, and a strong Sportsbook net revenue margin. The Q&A section highlights management's strategic initiatives, including the ESPN partnership and prediction markets, which are seen positively. The lack of clarity on some financial impacts slightly tempers enthusiasm, but overall, the strategic direction and partnerships are likely to drive a positive stock reaction.

Key Financial Performance

Revenue (Q3 2025) $1.144 billion, representing 4% year-over-year growth. The growth was impacted by customer-friendly sports outcomes, which reduced revenue by more than $300 million in the last two months.

Adjusted EBITDA (Q3 2025) Negative $127 million. This was below expectations due to the pronounced impact of customer-friendly sports outcomes.

Sportsbook Handle (Q3 2025) $11.4 billion, a 10% year-over-year increase. This growth was driven by strong engagement and effective promotional strategies.

iGaming Net Revenue Growth (Q3 2025) 25% year-over-year, marking the fastest growth since Q1 2024. This was driven by strong growth in active customers and net revenue per customer.

NFL Handle Growth (Season to Date) 13% year-over-year. This was attributed to recent product enhancements and strong customer engagement.

NBA Handle Growth (Season to Date) 19% year-over-year. This growth was an acceleration compared to recent quarters.

Parlay Handle Mix (NFL Season to Date) Year-over-year gains of 800 basis points. This contributed to the increase in Sportsbook net revenue margin.

Parlay Handle Mix (NBA Season to Date) Year-over-year gains of 1,000 basis points. This also contributed to the increase in Sportsbook net revenue margin.

Sportsbook Net Revenue Margin (4-Year Trend) Increased by more than 400 basis points over the last 4 years, averaging over 100 basis points per year. This was driven by improvements in parlay handle mix and promotional efficiency.

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Operating Highlights

DraftKings Predictions Launch: DraftKings is launching a new product called DraftKings Predictions in the coming months, which is expected to expand the total addressable market and unlock new customer bases and revenue streams. This product will initially focus on states without Sportsbook offerings.

Spanish Language Functionality: DraftKings will soon launch Spanish language functionality to cater to a growing audience, especially ahead of the 2026 World Cup.

Innovative iGaming Content: DraftKings is developing innovative slot and jackpot content to strengthen its iGaming position.

Exclusive Marketing Agreements: DraftKings has entered into exclusive marketing agreements with ESPN and NBCUniversal, providing deeper brand affinity, broader reach, and unmatched NBA access.

NBA Market Share Growth: Early indicators suggest that DraftKings' NBA market share is significantly higher compared to the same period last year.

Revenue and EBITDA Growth: DraftKings expects fiscal year 2025 revenue of $5.9 billion to $6.1 billion and adjusted EBITDA of $450 million to $550 million, reflecting significant growth compared to 2022.

Customer Retention and Engagement: Retention of NFL week 1 customers has increased by over 300 basis points year-over-year, with NFL handle growing 13% and NBA handle growing 19% season to date.

iGaming Revenue Growth: iGaming net revenue grew 25% year-over-year in Q3 2025, marking the fastest growth since Q1 2024.

Share Repurchase Program: DraftKings' Board has increased the share repurchase program from $1 billion to $2 billion, with plans to continue repurchasing shares as free cash flow increases.

Predictions Market Strategy: DraftKings plans to launch its predictions market offering in states without Sportsbook, aiming for shorter gross profit payback periods and incremental growth.

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Risk or Challenges

Customer-friendly sports outcomes: Customer-friendly sports outcomes in September and October 2025 negatively impacted revenue by more than $300 million, with a handful of NFL games having a pronounced effect. This highlights the risk of revenue volatility due to unpredictable sports outcomes.

Revised fiscal year 2025 guidance: DraftKings revised its fiscal year 2025 revenue guidance downward to $5.9 billion to $6.1 billion and adjusted EBITDA guidance to $450 million to $550 million, reflecting challenges in meeting prior expectations.

Competition in sports betting and predictions: The rise of predictions and competition from well-capitalized companies in the sports betting market poses a challenge. While DraftKings views predictions as an opportunity, it acknowledges structural limitations and competition in this space.

Dependence on sports outcomes: DraftKings' financial performance is significantly influenced by sports outcomes, which can lead to periods of overperformance or underperformance, creating challenges in financial predictability.

Limited access to legal online sports betting: Nearly half the U.S. population lacks access to legal online sports betting, limiting DraftKings' market reach and growth potential in certain states.

Investment in new product lines: DraftKings plans to invest in its predictions market offering, but acknowledges the need for shorter gross profit payback periods compared to established product lines, indicating potential financial risks if the investment does not yield expected returns.

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Guidance & Outlook

Revenue Projections: DraftKings revised its fiscal year 2025 revenue guidance to $5.9 billion to $6.1 billion, down from the previous range of $6.2 billion to $6.4 billion. This still represents a growth of 24% to 28% compared to fiscal year 2024.

Adjusted EBITDA Projections: The company adjusted its fiscal year 2025 adjusted EBITDA guidance to $450 million to $550 million, down from the prior range of $800 million to $900 million.

Sportsbook and iGaming Growth: DraftKings expects continued growth in its Sportsbook and iGaming segments, with improvements in customer retention, engagement, and net revenue margins. Sportsbook handle increased 10% year-over-year, and iGaming net revenue growth accelerated to 25% year-over-year in Q3 2025.

Predictions Market Launch: DraftKings plans to launch a predictions market offering in the coming months, targeting states without Sportsbook access. This is expected to unlock a new customer base and revenue stream, with potential to expand the total addressable market.

Marketing Agreements: New exclusive marketing agreements with ESPN and NBCUniversal are expected to enhance brand affinity and broaden reach, particularly in the NBA market.

Spanish Language Functionality: DraftKings will introduce Spanish language functionality ahead of the 2026 World Cup to cater to a growing audience.

Share Repurchase Program: The company increased its share repurchase program from $1 billion to $2 billion and plans to remain active in repurchasing shares over the next quarter.

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Shareholder Return Plan

Share Repurchase Program: DraftKings has bought back 9.3 million shares since the inception of its share repurchase program. The Board has authorized increasing the repurchase program from $1 billion to $2 billion. The company anticipates being active with share repurchases over the next quarter and expects to continue returning capital to shareholders as free cash flow ramps up over the coming years.

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Key Q&A

Q:What is the company's perspective on OSB hold percentage and its impact on modeling?

A:Jason Robins explained that while short-term outcomes can be frustrating, the business model has shown strength, as evidenced by over $300 million of adjusted EBITDA in Q2. He noted that outcomes normalize over time, and modeling should consider a smooth curve over a multi-year period.

Q:What value does Greg Wendt bring to the Board of DraftKings?

A:Jason Robins highlighted Greg Wendt's expertise in investing, his strong perspective on capital markets, and his connections in public affairs. He believes Greg will contribute significantly to the company's strategy and direction.

Q:How does DraftKings plan to manage volatility in hold percentages, especially with parlays?

A:Jason Robins stated that the company focuses on maximizing long-term value while managing risk appropriately. He noted that volatility is more pronounced in concentrated events like NFL weekends or the Super Bowl. The company ensures risk management by limiting liabilities and hedging when necessary.

Q:What is DraftKings' approach to the profitability of prediction markets?

A:Jason Robins emphasized a data-driven and conservative approach, starting with cautious views on LTV and payback periods. He acknowledged the nascent nature of prediction products and the lack of data, which makes retention and monetization challenging initially. The company plans to adjust its strategy as data becomes available.

Q:Why is DraftKings comfortable proceeding with prediction markets despite some peers not doing so?

A:Jason Robins mentioned the company's strong relationships with regulators and policymakers, which provided comfort in their approach. He noted that the focus would be on states without legal online sports betting, aligning with the opportunity in the prediction space.

Q:How does DraftKings view the evolution of prediction market products?

A:Jason Robins believes the primary volume and opportunity will be in the sports space, although other areas like elections may also be popular. He noted that innovations could create opportunities in the long term, but these are less proven.

Q:What competitive advantages does DraftKings have in the prediction market space?

A:Jason Robins cited the company's expertise in product, customer experience, and marketing, as well as its strong brand and media partnerships. He believes these factors make it difficult for competitors to match DraftKings' position.

Q:What is the significance of the ESPN deal for DraftKings?

A:Jason Robins expressed excitement about the partnership, highlighting ESPN's strong brand, app, and fantasy database. He believes the integration with ESPN's assets will enhance customer engagement and growth opportunities for DraftKings.

Q:How does DraftKings plan to address the challenges of offering parlays in prediction markets?

A:Jason Robins explained that parlays are challenging in prediction markets due to liquidity issues. While DraftKings may offer prepackaged options, the offerings will be limited compared to traditional sportsbooks.

Q:What factors contributed to the $300 million impact on DraftKings' full-year guide?

A:Jason Robins attributed most of the impact to outcomes, with additional factors including prediction market investments and product and technology ramp-ups. He noted that the company ensured sufficient budget for these areas.

Q:What are DraftKings' investment priorities for the next year?

A:Jason Robins mentioned investments in prediction markets, AI, and potential new state launches. He noted that core business investments might decrease, with a focus on efficiency and faster payback periods for new initiatives.

Q:How does DraftKings view the impact of prediction markets on regulatory and legislative landscapes?

A:Jason Robins believes prediction markets will pressure policymakers to consider sports betting legislation and rethink tax increases. He noted that legislators are aware of the implications and are developing their views.

Q:What is DraftKings' approach to customer acquisition costs (CAC) in prediction markets?

A:Jason Robins stated that the approach would be similar to OSB but with shorter payback periods. The company plans to be conservative and data-driven, testing enough to gather meaningful data before scaling.

Q:What is the opportunity for DraftKings with the Spanish language app?

A:Jason Robins highlighted the potential to capture a growing demographic, especially with events like the 2026 World Cup. He noted that the app could help DraftKings build outsized share in the Spanish-speaking market.

Q:What drove the surge in NFL and NBA parlay mix for DraftKings?

A:Jason Robins attributed the increase to product innovations like stacks and effective promotions like the Ghost Leg promotion. He emphasized the focus on bet mix and long-term margin growth.

Q:Review of Unclear Management Responses

A:Management avoided directly answering Robin Farley's question about the split of the $300 million impact between Q3 and Q4, deferring the response to a follow-up offline. This lack of clarity left the structural hold increase unquantified.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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DraftKings' earnings call presented a mixed outlook. While there were positive elements such as AI-driven cost optimization and growth in live betting, concerns about tax impacts and unclear guidance on prediction markets and AI revenue effects tempered enthusiasm. The Q&A revealed management's cautious approach and uncertainty in some areas, leading to a neutral sentiment for short-term stock movement.

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DKNG Slides

DraftKings Q1 2025 slides: Revenue jumps 20%, guidance cut on sports outcomes

2025-05-08

DraftKings Q2 2025 slides: record revenue and EBITDA as growth accelerates to 37%

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DKNG Report

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