DraftKings Inc. (DKNG) Q4 2025 Earnings Call Transcript
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Overview
Despite strong growth in Sportsbook and iGaming, the reduced revenue and EBITDA guidance indicate caution. The Q&A highlights potential in prediction markets but lacks specifics on revenue impact. Positive factors include new partnerships and increased share repurchase, countered by conservative guidance and unclear marketing strategies. Overall, the sentiment is balanced.
Key Financial Performance
Fourth Quarter Revenue Grew 43% year-over-year to nearly $2 billion. The increase was attributed to strong performance across all verticals, including Fantasy, Sportsbook, iGaming, and Lottery.
Adjusted EBITDA (Q4) $343 million, 4x the prior year period. Adjusted EBITDA margin expanded by more than 1,000 basis points year-over-year to 17%. The growth was driven by operational efficiencies and scaling of the business.
Fiscal Year 2025 Revenue Grew 27% year-over-year to above $6 billion. The growth was attributed to strong performance across all verticals and the scaling of the Predictions vertical.
Fiscal Year 2025 Adjusted EBITDA More than tripled to over $600 million, exceeding the high end of the guidance range. This was due to operational efficiencies and strong revenue growth.
Sportsbook Revenue (Q4) Increased 64% year-over-year to $1.4 billion. Handle growth accelerated to 13% year-over-year, and net revenue margin increased 250 basis points to 8%. Growth was driven by higher parlay handle mix and favorable sports outcomes.
iGaming Revenue (FY 2025) Increased 20% year-over-year. Growth was driven by an expanded offering and attracting a broader demographic.
Lottery Revenue (FY 2025) Benefited from a stronger jackpot environment and the rollout of Scratcher Games and Keno in additional states.
Sportsbook Handle (FY 2025) Increased 11% year-over-year to $54 billion. Growth was driven by increased adoption and activity despite being available to only half the U.S. population.
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Operating Highlights
DraftKings Predictions: Rapidly developing into a massive incremental opportunity. Integration of Railbird and launch of market-making division planned. Targeting hundreds of millions in annual revenue in the years ahead.
Fantasy Revenue: Increased as Pick6 has begun to scale.
Sportsbook Expansion: Launched in Missouri, achieving the highest adoption rate in any state launch in history within the first 2 months.
Lottery Expansion: Rolled out Scratcher Games and Keno in additional states.
Revenue Growth: Fourth quarter revenue grew 43% year-over-year to nearly $2 billion. Fiscal year 2025 revenue grew 27% year-over-year to above $6 billion.
Adjusted EBITDA: Fourth quarter adjusted EBITDA was $343 million, 4x the prior year period. Fiscal year 2025 adjusted EBITDA more than tripled to over $600 million.
Share Repurchases: Repurchased 16 million shares during fiscal year 2025, including 8 million in the fourth quarter.
Predictions Category Leadership: DraftKings aims to lead the Predictions category, leveraging its expertise in sports modeling, trading, and technology. Plans to integrate Railbird and launch market-making to enhance customer experience and liquidity.
Regulatory Engagement: Supports CFTC's efforts to establish clear standards for event contracts, which could expand sports-related Predictions over time.
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Risk or Challenges
Regulatory Framework for Predictions: The company acknowledges the need for a more defined and durable regulatory framework for Predictions, which could pose challenges if not addressed effectively. The CFTC's engagement on event contracts is seen as constructive, but uncertainty remains until clear standards are established.
Overlap Between Predictions and Sportsbook: There is a potential overlap between the Predictions category and the Sportsbook business. Although the impact has been minimal so far, there is a risk that Predictions could cannibalize Sportsbook revenue, especially if customer preferences shift.
Market Liquidity in Predictions: The success of the Predictions category depends heavily on market liquidity. Tight two-way markets with depth are critical for attracting participants, and any failure to provide sufficient liquidity could hinder growth.
Variance in Sports Outcomes: The company acknowledges that variance in sports outcomes can act as either a tailwind or a headwind for the Sportsbook business. This randomness introduces financial unpredictability.
Dependence on U.S. Market: The Sportsbook business is currently available to only about half the U.S. population, limiting growth potential unless further state-level regulatory approvals are obtained.
Integration of Acquisitions: The company plans to integrate Railbird into its Predictions offering. Any delays or challenges in this integration could impact innovation velocity and customer economics.
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Guidance & Outlook
Predictions Revenue: DraftKings anticipates significant improvements to its Predictions offering, targeting hundreds of millions in annual revenue in the coming years, with long-term upside potential.
Revenue Growth: DraftKings expects fiscal year 2026 revenue to be between $6.5 billion and $6.9 billion, reflecting continued growth in its core business and new initiatives.
Adjusted EBITDA: The company projects adjusted EBITDA for fiscal year 2026 to range between $700 million and $900 million, supported by investments in Predictions and other growth areas.
Market Trends in Predictions: DraftKings views Predictions as a $10 billion annual gross revenue opportunity in the years ahead, with growth accelerating through 2026 and beyond.
Sportsbook Performance: DraftKings expects continued growth in Sportsbook handle and revenue, with structural net revenue margin improvements driven by trends like parlay handle mix.
Regulatory Developments: DraftKings supports the CFTC's efforts to establish clear standards for event contracts, which could expand the Predictions market over time.
Product and Technology Investments: DraftKings plans to integrate Railbird in mid-2026 and launch market-making to enhance liquidity and customer experience in Predictions.
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Shareholder Return Plan
Share Repurchase: We repurchased another 8 million shares during the quarter, and we expect to remain active with repurchases as our adjusted EBITDA continues to grow.
Annual Share Repurchase: We reported positive net income for the first time and repurchased 16 million shares during the fiscal year.
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Key Q&A
Q:Why is DraftKings more aggressively leaning into prediction markets now?
A:DraftKings is more aggressively leaning into prediction markets due to a stable regulatory environment created by the CFTC's affirmation of jurisdiction and guidelines. Additionally, early numbers and broader market estimates show significant growth potential, with analyst estimates as high as $16 billion. DraftKings is well-positioned with existing pricing models, marketing synergies, and national spend targeting sports customers.
Q:What are the building blocks for DraftKings' revenue guidance for 2026, particularly in sports betting?
A:DraftKings has adopted a conservative approach to revenue guidance for 2026. The company aims to avoid missing targets by setting achievable numbers. They have accounted for factors like adjusted EBITDA growth, revenue growth, and lessons learned from past guidance misses. The guidance reflects a cautious approach to ensure reliability.
Q:What could drive revenue higher in 2026, particularly around prediction markets?
A:Prediction markets are considered upside potential, with no revenue currently included in the guidance. DraftKings expects to spend on customer acquisition and sees opportunities in states like California, Texas, and Florida. The core business also has upside potential, with growth in handle outside of NFL and optimization of promotional activities.
Q:What is DraftKings' strategy for increasing penetration versus increasing spend per head in older states?
A:DraftKings aims to focus on both increasing penetration and spend per head. In older states, customer growth may slow, but there is significant upside in monetizing existing customers through parlay mix growth and AI-driven promo optimization. For example, parlay handle mix was up 300 basis points year-over-year in January.
Q:How does DraftKings view prediction markets as a lever for user growth and activity growth?
A:DraftKings sees prediction markets as a way to attract incremental customers, especially in states where they were not present with OSB, such as California, Texas, and Florida. The product is expected to expand the user base without significant cannibalization of existing customers.
Q:How does DraftKings plan to build liquidity in the Railbird exchange, and is the OSB platform a competitive differentiator?
A:DraftKings plans to leverage its existing pricing models, data science, and marketing infrastructure to build liquidity in the Railbird exchange. The OSB platform is a competitive differentiator, providing advantages in market-making and creating liquidity, particularly in new and combo markets.
Q:Why was the initial launch of prediction markets in December not very splashy, and what is the advertising plan going forward?
A:The initial launch in December was bare-bones to ensure a competitive product. DraftKings plans to be more aggressive once Railbird launches and the product is fully integrated. The advertising strategy will leverage national marketing spend to drive value for both OSB and prediction markets, with more details to be unveiled at the Investor Day.
Q:What is the breakdown of DraftKings' revenue guidance, and how does it account for handle, hold, and promo?
A:DraftKings' revenue guidance accounts for interactions between handle, hold, and promo. The company has learned from past mistakes and now considers how changes in hold and promo impact handle. The guidance reflects a balanced approach to these factors, aiming for overall positive net revenue growth.
Q:How does DraftKings view the monthly unique player (MUP) metric, and what are the trends?
A:MUP growth is influenced by customer acquisition, which was lower in 2025 compared to 2024. Retention numbers remain strong, with over 100% revenue retention for new user cohorts. Excluding the impact of Jackpocket, MUPs grew by about 5%.
Q:What is the competitive environment and promotional intensity in OSB and prediction markets?
A:The competitive environment is currently rational, with no significant increase in promotional intensity in OSB or prediction markets. DraftKings has built some cushion into its guidance to account for potential changes but has not observed a surge in promotional activity.
Q:What are the start-up costs for prediction markets included in the EBITDA guidance?
A:The EBITDA guidance includes fixed costs in the double-digit millions and incremental marketing spend for prediction markets. DraftKings plans to repurpose national marketing spend to drive both OSB and prediction markets, with more details to be shared at the Investor Day.
Q:What advantages does DraftKings have in prediction markets compared to competitors?
A:DraftKings has significant advantages, including access to sports data, a vast historical database, and advanced pricing models developed over years. These assets position DraftKings well to offer competitive products and create combination trading options similar to parlays.
Q:What is DraftKings' approach to promotional activity in the core Sportsbook market?
A:DraftKings has observed a rational promotional environment in the core Sportsbook market, with no recent surge in promotional activity. The company has built flexibility into its guidance to adjust promotional spend if needed.
Q:Who are the typical prediction market players, and what are the trends in NFL handle?
A:Prediction market players are primarily from states like California and Texas. NFL handle trends are influenced by net revenue margins, with non-NFL sports showing double-digit handle growth. Changes in net revenue margins impact handle, but overall handle growth remains positive.
Q:What is the legislative outlook for prediction markets and OSB?
A:Prediction markets are gaining traction in legislative discussions, potentially influencing states to consider legalizing OSB. DraftKings is optimistic about the impact of prediction markets on future legalization efforts.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact marketing spend for prediction markets, citing competitive reasons. They also did not quantify the potential revenue from prediction markets, stating it was too early to estimate. Additionally, they deferred detailed explanations of their marketing strategy and product rollout to the upcoming Investor Day.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI machine
CFTC Chair
DraftKings Predictions
Investor
LTV
Predictions category
Predictions opportunity
Railbird
Sportsbook handle
advantage
brand
content
customer experience
distribution
economics
event contract
exchange
fee
hundred
infrastructure
integration
launch
liquidity
market making
marketing
million
model
participant
platform
playbook
position
prediction
record
relationship
scale
step
trading option
trading technology
trust
volume
way
DKNG Transcript
DraftKings Inc. (DKNG) Q4 2025 Earnings Call Transcript
Unknown2-13
Despite strong growth in Sportsbook and iGaming, the reduced revenue and EBITDA guidance indicate caution. The Q&A highlights potential in prediction markets but lacks specifics on revenue impact. Positive factors include new partnerships and increased share repurchase, countered by conservative guidance and unclear marketing strategies. Overall, the sentiment is balanced.
DraftKings Inc. (DKNG) Q3 2025 Earnings Call Transcript
Positive11-7
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.
DraftKings Inc. (DKNG) Presents At 2025 BofA Gaming, Lodging & Leisure Conference Transcript
Neutral9-4
DraftKings Inc. (DKNG) Q2 2025 Earnings Call Transcript
Unknown8-9
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.
DKNG Slides
DKNG Report
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