DraftKings Inc. (DKNG) Q1 2026 Earnings Call Transcript
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Overview
DraftKings demonstrates strong financial growth and strategic investments, particularly in Predictions and Sportsbook. The Q&A highlights positive sentiment from analysts, with management addressing key concerns effectively. Despite some unclear responses, the overall tone is optimistic, with partnerships and regulatory support enhancing market potential. The anticipated revenue growth and profitability in Predictions, along with strategic partnerships, suggest a positive stock reaction.
Key Financial Performance
Revenue Increased 17% year-over-year and surpassed $1.6 billion. Growth attributed to strong performance in Sportsbook and continued enhancements to offerings.
Adjusted EBITDA Increased 64% year-over-year to $168 million. Would have exceeded $200 million if not for significant investment in Predictions and the launch of Sportsbook in Arkansas.
Sportsbook Revenue Increased 24% year-over-year to $1.1 billion. Net revenue margin increased by 140 basis points to 7.8%. Growth driven by parlay handle mix increase of nearly 300 basis points and revenue growth exceeding 20% across major sports like NBA and NCAA men's basketball.
Adjusted Gross Margins Increased by nearly 200 basis points year-over-year. Efficiency attributed to AI-first execution and streamlined teams.
Net Income Achieved positive net income for the second consecutive quarter. Progress attributed to profitability improvements and share repurchases of almost $100 million.
Predictions Consumer Volume Annualized volume exceeded $1 billion in April, with total volume traded exceeding $2.3 billion, reflecting increases of 38% and 43% month-over-month, respectively. Growth driven by doubling markets available to trade and reduced customer acquisition costs by more than 80%.
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Operating Highlights
Predictions: DraftKings has launched Predictions, a strategic priority, within its flagship app. Predictions customer acquisition costs declined by over 80% in April. Predictions consumer volume exceeded $1 billion annually, and total volume traded exceeded $2.3 billion annually, with month-over-month increases of 38% and 43%, respectively. Market making has been introduced, generating positive returns, and a proprietary exchange and combos are set to launch soon.
Sportsbook Expansion: DraftKings launched Sportsbook in Arkansas, contributing to revenue growth. Sportsbook revenue increased 24% year-over-year to $1.1 billion, with a net revenue margin increase of 140 basis points to 7.8%. Revenue growth exceeded 20% across major sports like NBA and NCAA men's basketball.
Operational Efficiency: Adjusted gross margins increased by nearly 200 basis points year-over-year. Adjusted operating expenses increased only slightly, excluding investments in Predictions and the Arkansas Sportsbook launch. AI-first execution and streamlined teams have improved productivity, with some teams operating at 2-3x last year's output.
Super App Strategy: DraftKings is focusing on a nationwide Super App to integrate Sportsbook and Predictions. This strategy aims to leverage shared infrastructure and customer overlap, enhancing customer experience and operational efficiency.
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Risk or Challenges
Investment in Predictions and Sportsbook Launch in Arkansas: Significant investment in Predictions and the launch of Sportsbook in Arkansas impacted adjusted EBITDA, which would have exceeded $200 million without these expenditures. This indicates a financial strain due to high upfront costs.
Early Losses in Predictions Customers: Third-party data suggests Predictions customers are experiencing losses more quickly than Sportsbook customers, raising concerns about customer trust, retention, and the need for robust consumer protections.
Scaling Challenges in Predictions: The company is planning significant investments to improve Predictions offerings, build liquidity, and scale customer acquisition. This could pose execution risks and financial strain if not managed effectively.
Regulatory and Market Integrity Risks: The company emphasizes the importance of markets that uphold sports integrity and align with responsible engagement standards, indicating potential regulatory and reputational risks in the Predictions segment.
Dependence on Sports Revenue: The company is combining Sportsbook and Predictions revenue into a single category, which could obscure performance issues in individual segments and increase reliance on the overall sports market.
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Guidance & Outlook
Fiscal Year 2026 Revenue: Expected to be between $6.5 billion and $6.9 billion.
Fiscal Year 2026 Adjusted EBITDA: Projected to range from $700 million to $900 million, including significant investment in Predictions.
Sports Predictions: Significant investment planned to improve offerings, build liquidity, and scale customer acquisition. Leadership position in Sports Predictions expected by year-end 2026.
Sports Revenue Reporting: Starting next quarter, Sports revenue will combine Sportsbook and Sports Predictions to reflect operational strategy.
Long-term Revenue Opportunity: Projected gross revenue opportunity of $55 billion to $80 billion by 2030, with at least a 30% long-term adjusted EBITDA margin.
World Cup Preparations: Super App, market-making capabilities, proprietary exchange, and combos to be launched ahead of the World Cup to strengthen leadership in Sports Predictions.
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Shareholder Return Plan
Share Repurchase: Repurchased almost $100 million of shares in the first quarter.
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Key Q&A
Q:Are you starting to see investment spending like marketing come down across the Prediction Market business?
A:Jason Robins stated that CACs have been dropping quickly and scaling faster than expected. They plan to invest $200 million to $300 million in Predictions this year, with a significant portion allocated to marketing and product technology investment. The rest of the business is expected to generate over $1 billion in adjusted EBITDA this year.
Q:Can you help us think about what handle looks like or the exit rate into 2Q?
A:Jason Robins mentioned that handle was up 6% in April, and revenue grew 22% year-over-year. They achieved over $100 million in adjusted EBITDA in April alone, indicating a strong start to the quarter.
Q:What are you doing to move the core business forward?
A:Jason Robins highlighted opportunities to improve the product offering, enhance retention, and grow iGaming. They have increased focus on iGaming and see potential in expanding legalization efforts for sports betting and iGaming across the country.
Q:Can you bridge us in how you think about some of the moving pieces for the second quarter?
A:Jason Robins noted strong momentum in the core business, with over $100 million in adjusted EBITDA in April and 15 consecutive weeks of year-over-year net revenue growth. They plan to ramp investment in Predictions, especially with the World Cup, while maintaining flexibility to adjust based on data.
Q:What do you attribute the improved promotional effectiveness on the core OSB side to?
A:Jason Robins attributed the improvement to a stable competitive environment, data-driven optimization, and increasing parlay mix. He emphasized the company's strong data orientation and the benefits of driving strong top-line growth.
Q:Can you talk about trends in customer growth and month growth?
A:Jason Robins explained that customer numbers in Predictions are still small but show exciting acquisition trends. They plan to ramp marketing in the back half of the year, expecting significant increases in MUPs driven by Predictions customer acquisitions.
Q:Can you provide color around the cadence of revenue and investment for the year?
A:Jason Robins stated that revenue seasonality will be typical, with increased Prediction Market spending in the back half of the year. They plan to invest $200 million to $300 million in Predictions, with most of it occurring later in the year.
Q:Can you break down the advocacy spend in the first quarter?
A:Jason Robins clarified that the $26 million advocacy spend was not related to Predictions but was part of a coalition lobbying effort, including a super PAC, to influence state policies.
Q:What have you learned about the Prediction customer and their behavior?
A:Jason Robins noted that Prediction customers are demographically similar to sports betting customers, with higher volume per customer. College basketball was particularly popular among Prediction users, likely due to the format of the product.
Q:How much focus is there on reducing payment costs, and does the Super App provide any savings?
A:Jason Robins mentioned that payment costs have been decreasing due to internal changes and renegotiated rates. The Super App could further reduce costs by increasing retention and reducing money movement on and off the platform.
Q:What is your approach to market-making in Prediction markets?
A:Jason Robins stated that their market-making business is already profitable and has significant growth potential. They plan to participate in third-party platforms to maximize opportunities and manage risk effectively.
Q:What is the legalization outlook for iGaming and OSB?
A:Jason Robins highlighted momentum in the DMV area (Washington, D.C., Virginia, Maryland) and potential opportunities in Ohio and Illinois. He believes Prediction Markets are helping push legalization efforts and counter tax increases.
Q:Did you experience any sport outcome hold impact in Q1?
A:Jason Robins stated that they were slightly positive on sport outcomes in Q1, with a minor impact in the tens of millions.
Q:What are the profitability expectations for different layers of Prediction Markets?
A:Jason Robins explained that the market maker is already profitable, while the consumer-facing side requires more investment. The exchange is expected to become profitable quickly with minimal product investment.
Q:What are your World Cup expectations?
A:Jason Robins expects the World Cup to drive significant customer acquisition and engagement, particularly in Prediction states. They recently launched Spanish language functionality to attract a broader audience.
Q:Are you seeing share gains in the NBA, and how do partnerships impact engagement?
A:Jason Robins noted strong NBA performance and emphasized the importance of partnerships in driving engagement and broadening the sport's reach.
Q:How do you view the cost structure of the core business and its future trajectory?
A:Jason Robins stated that marketing spend on the core business will decline as Prediction spend ramps up. They see strong top-line growth and moderating promotional and marketing spend as key drivers of profitability.
Q:Why are consumers losing more in Prediction Markets than OSB?
A:Jason Robins attributed this to professional market makers dominating Prediction Markets, leading to higher losses for less experienced users. He emphasized the need to manage the ecosystem responsibly.
Q:How do you plan to leverage partnerships like ESPN and NBC for Predictions?
A:Jason Robins plans to use these partnerships to promote a unified DraftKings platform rather than focusing solely on Predictions. The goal is to create a consistent message for all consumers.
Q:Why did NGR growth for online casino decelerate, and what changes are being made?
A:Jason Robins acknowledged lower growth in online casino and highlighted recent product and marketing changes, such as the launch of Flex Spins and improved marketing assets, to accelerate growth.
Q:Can you quantify the impact of Arkansas and Predictions on the EBITDA guide?
A:Jason Robins stated that the initial guidance accounted for potential investments in Arkansas and Predictions. The Arkansas spend is in the low double digits, and the Predictions investment remains within the $200 million to $300 million range.
Q:How do you view the long tail of products and their impact on margins?
A:Jason Robins emphasized that products like Pick6 are growing without significant investment and provide incremental engagement and revenue. They continuously evaluate their product portfolio to maximize shareholder value.
Q:How much of the Prediction Market spend is onetime versus recurring?
A:Jason Robins expects to continue investing in Predictions in 2027, assuming consistent regulatory and market conditions. The investment is not considered onetime but part of a long-term strategy.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the total Arkansas spend and the exact breakdown of Prediction Market investment. They also did not disclose specific profitability metrics for different layers of Prediction Markets or provide a clear trajectory for future marketing spend adjustments.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
App market
App plan
Arkansas Profitability
Cup road
Day Super
Day path
DraftKings category
DraftKings investment
Experience discipline
Instructions conference
Investor Day
Investor Relations
Market making
Predictions Sportsbook
Predictions consumer
Predictions customer
Predictions end
Predictions flagship
Predictions launch
Predictions loss
Predictions market
Robins
Super App
advantage Predictions
capability
customer experience
exchange combo
liquidity
position Predictions
prediction
trust
volume
DKNG Transcript
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DraftKings Inc. (DKNG) Q1 2026 Earnings Call Transcript
Positive5-8
DraftKings demonstrates strong financial growth and strategic investments, particularly in Predictions and Sportsbook. The Q&A highlights positive sentiment from analysts, with management addressing key concerns effectively. Despite some unclear responses, the overall tone is optimistic, with partnerships and regulatory support enhancing market potential. The anticipated revenue growth and profitability in Predictions, along with strategic partnerships, suggest a positive stock reaction.
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.
DKNG Slides
DKNG Report
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