Good afternoon. Welcome to this Earnings Extra, which focuses on DraftKings' Q4 earnings call that took place today.

Rolling in the deep.

DraftKings gets behind the profit push

Jason Robins tells analysts he believes DraftKings is on a “great trajectory” as the company increases 2023 guidance.

Buy in: CEO Robins suggested that DraftKings’ efforts to constrain its cost growth had been welcomed by the whole company. “That’s something I think that really has resonated with the team,” he said. “We are trying to be surgical.”

• “We’re all cognizant of the market environment we’re in,” he added.

• “But we also understand that to build the most profitable long-term company we need to be as efficient as we possibly can and that’s a message that everyone in leadership has really taken on.”

• “I also think that the team is working hard to be more efficient,” he added. 

• “I think that there’s been a real lightbulb that’s gone off here, that we can do more and actually grow revenue.”

• “That’s been a rallying cry for the team.”

• Recall, DraftKings announced 140 redundancies in January.

Recap: DraftKings said in its Q4 earnings overnight that revenue rose 81% over the three months to December to $855m, with operational losses down 37% to $233m and adj EBITDA losses falling to $49.9m from $128m.

• The company also issued new guidance on losses for 2023 of $400m at midpoint, down from $525m as it said it reflected a “meaningful slowdown” in fixed-costs growth. 

• Revenues for 2023 were also nudged up to $2.95bn at midpoint. 

• The company was keen to emphasize it would be exiting 2023 with >$700m in cash. 

• “We don't need capital, whether equity or debt financing,” said Robins.

Construction time again: Robins said the increased emphasis on developing its own same-game parlay product, notably being the first B2C brand to launch a live NBA SGP, was key to the company’s margin improvements. “I think NFL 2022 was the culmination of a year’s worth of work,” he suggested.

• “What’s nice about the same-game parlay product is that customers love it,” he said.

• “I think US customers are uniquely oriented towards the kind of proposition of ‘bet a little to win a lot’.”

• Robins added that higher margins won’t affect 2023 guidance and that the group now had “enough data to put out models that are as good or better than what we can get off the shelf”. 

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Hypotheticals 

A place called hope: Asked about iGaming potential, Robins said that, in general, the company hoped to add 3-4% of the US population to the iGaming market every year. For 2024, he added that the company had built in some assumptions, but that did not include the potential for a New York opening.

• Recall, this week an iGaming bill was put before the New York Senate.

Name on the shirt: Talking about the cutback from sports team sponsorships, Robins said DraftKings had a number of partners who “have been very constructive” and agreed to moderate spend or the number of partnerships.

• He said the promotional environment generally would alter across the market. “The market competitively has become much more rational,” he added.

M&A: Asked about using stock as currency, Robins noted that more momentum would make it more attractive, but he said that wasn’t what the company was focused on.

• “Obviously, there’ll be a time in the market,” he added. “It’s hard to predict because we’re in such a rapid phase of evolution right now.”

Penn completes Barstool acquisition

Penn Entertainment has completed its previously announced acquisition of Barstool Sports, taking full control of the 76% of the shares it didn’t already own for approximately $388m. The company said the closing of the acquisition marked a “major milestone” for Barstool Sports. 

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What we’re reading

No fan: Fanatics won’t feature when Massachusetts launches online.

Calendar

• Feb 21: Due Diligence

• Feb 22: Catena Media FY

• Feb 23: Churchill Downs Q4

• Feb 24: VICI Q4

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