During DraftKings’ Q2 2023 earnings call, the company reported revenue of $875 million, a year-over-year increase of 88%. DraftKings has Pennsylvania to thank, along with other mature markets it launched in, for the impressive revenue growth.
Pennsylvania’s mature market accounted for significant growth for DraftKings
The significant revenue growth for DraftKings in Q2 2023 can be attributed to the states it’s been in since at least 2021. Pennsylvania, New Jersey and Michigan are some of the top jurisdictions DraftKings performs best in, with both online casinos and sports betting.
In DraftKings’ business update, the company released several statistics on the impact its mature markets had in Q2:
- Combined handle growth accelerated quarter-over-quarter and increased more than 35% compared to the same period in 2022
- Revenue increased more than 70% year-over-year
- Adjusted gross margin increased more than 8%
- External marketing declined more than 10%
- Total unique customers increased approximately 25%
The update, written by CEO, Jason Robins, and CFO, Jason Park, said:
“Older states are generating significant contribution profit after the initial investment period as customers are retained, handle per player increases, hold rises, promotional intensity declines, and external marketing decreases.”
DraftKings maintains No. 1 online casino market share spot
DraftKings announced in Q1 2023 that it achieved the top GGR spot for online casinos. In Q2, the company said it sustained that spot with a 27% market share.
It’s hard to argue the results, especially in Pennsylvania. DraftKings is under the Hollywood Penn National license, along with Hollywood, BetMGM, PointsBet and Barstool. The license has recorded $426.1 million year to date, which is more than double Rivers Casino Philadelphia’s license ($209.4 million), which consists of BetRivers, Borgata and SugarHouse.
The Pennsylvania Gaming Control Board (PGCB) does not break down revenue by operator. With BetMGM’s reported slight decline in market share, it’s more than plausible to believe DraftKings is the top online casino operator in the Keystone State.
DraftKings’ customer retention strategies have been better than expected as of late. The company has been able to retain players from last NFL season, which has carried over into the NBA and MLB seasons. Retention numbers on the sports side has set up cross-sell opportunities for DraftKings to capitalize on. Robins said during the Q2 earnings call:
“It’s kind of like this halo effect of when you retain better and cross more people into the NBA on the sports side, that then has some spill-over effect on iGaming. More active players on the online sports betting platform cross-sell into active players on the iGaming products. So that’s really, I think, what I would attribute to Q2.”
DraftKings has launched several “homegrown” games in Q2 that helped drive revenue. Some are sports themed, too, which helps with cross-over:
- NHL Slapshot
- NBA Slam Dunk Roulette
- Hart Race Hold Em
DraftKings’ cross-sell strategy, new games and improved product is setting the company up for a strong second-half of the year. Robins said:
“The product is so much better year-over-year from where it was last year. And as I said earlier, I feel like in the back half of the year, we’re going to have the best product in the market.”
DraftKings raises revenue and adjusted EBITDA guidance
Due to the strong performance from mature states, DraftKings has been able to adjust totals of important metrics, such as revenue and EBITDA:
- Raising fiscal year 2023 revenue guidance to a range of $3.46 billion to $3.54 billion from the range of $3.135 billion to $3.235 billion. The update equates to year-over-year growth of 54% to 58%.
- Improving fiscal year 2023 adjusted EBITDA guidance. It now expects fiscal year 2023 adjusted EBITDA of between $190 million and $220 million loss compared to prior guidance of $290 million and $340 million loss.
- DraftKings expects to generate $150 million to $175 million of adjusted EBITDA and nearly $1.2 billion of revenue in Q4 2023.
Robins said of the speed of growth for the company:
“We weren’t expecting this. This was the result of a huge market share gain year-over-year.”
Despite the DraftKings’ stock price down 11% since closing on Aug. 4, the price has nearly tripled since the start of 2023.
In a note to clients, Wells Fargo analyst Daniel Politzer offered a positive review of DraftKings’ performance and stock:
“We learned a lot last week: DKNG is capturing share, capitalizing on an improved product, and limiting opex growth […] EBITDA is inflecting more quickly/steeply than we previously envisioned, and we expect its momentum to continue.”