DraftKings Cuts 2024 Forecast, Eyes 2025 Growth

DraftKings, the leading U.S. sports betting operator, has reported a robust third-quarter performance for 2024, with a 38.7% increase in revenue year-on-year, reaching $1.096 billion. Despite this positive growth, the company has had to revise its full-year projections downwards, citing a string of unfavorable NFL outcomes in October as a primary factor. This setback has prompted a downgrade of both revenue and earnings guidance for 2024, which has raised concerns among investors.

• Revenue Growth in Q3: DraftKings reported a 38.7% year-on-year increase in third-quarter revenue, reaching $1.096 billion, driven by strong customer engagement, market expansion, and efficient promotional strategies.
• 2024 Forecast Downgrade: Due to unfavorable NFL results, DraftKings lowered its 2024 revenue and EBITDA guidance, with projected adjusted EBITDA down by 48% from earlier forecasts.
• Optimism for 2025: Despite the setbacks, DraftKings is confident in its future growth, projecting a 31% year-over-year revenue increase and adjusted EBITDA growth between $900 million to $1.0 billion for 2025.

Revenue Growth and Earnings Downgrade

For the third quarter, DraftKings exceeded expectations with a revenue increase driven by strong customer engagement, the expansion into new markets, and effective promotional reinvestment. The company launched operations in Vermont, Washington D.C., and North Carolina, contributing to a growth in its online sports betting handle, which rose 25% year-on-year. Overall, Gross Gaming Revenue (GGR) in both sportsbook and iGaming segments increased significantly—by 39% and 26%, respectively. However, the company now faces a revised revenue forecast for the year, which is expected to fall between $4.85 billion and $4.95 billion, a 5% reduction from previous expectations.

The primary reason for the downgrade is a series of customer-friendly NFL outcomes, which DraftKings CEO Jason Robins described as “the worst in company history.” A week in early November saw negative hold rates of -10% to -15%, translating into an estimated $250 million revenue loss and a $175 million impact on EBITDA. While cost savings through efficiency measures mitigated some of the losses, the company had to cut its adjusted EBITDA guidance for 2024, now projected to range from $240 million to $280 million, a stark 48% decline from earlier projections.

Market Reactions and CEO Optimism

Despite these setbacks, Robins sought to reassure investors by highlighting DraftKings' longer-term prospects. The company is confident in its ability to bounce back in 2025, with adjusted EBITDA for that year expected to grow between $900 million and $1.0 billion. Robins downplayed the short-term volatility from sports betting outcomes, suggesting that as the business scales, such fluctuations will become “rounding errors” in the broader financial picture.

DraftKings also introduced new revenue guidance for FY2025, projecting a 31% year-over-year growth, with total revenue anticipated to fall between $6.2 billion and $6.5 billion. However, some analysts, including Deutsche Bank’s Carlo Santarelli, have expressed caution, pointing to the significant downward revisions to DraftKings' 2024 projections as a red flag for the company's ability to deliver on 2025 forecasts.

Expansion, New Ventures, and Future Growth

The company's third-quarter performance was not solely dependent on sports betting. DraftKings also expanded its product offerings, acquiring the lottery courier business Jackpocket in May. This move helped diversify its revenue streams and contributed to a 55% year-on-year increase in monthly unique players (MUPs). However, Jackpocket’s lower average revenue per MUP (ARPMUP) posed a challenge, as it reduced overall ARPMUP by 10% in Q3. Excluding Jackpocket users, ARPMUP would have increased by 8%.

Looking ahead, DraftKings sees growth potential in key U.S. states such as Texas, Georgia, and Minnesota for sports betting, as well as in New York, Illinois, Maryland, and North Carolina for iCasino. The company is also keeping an eye on international opportunities, though Robins emphasized that there is no immediate need for expansion outside the U.S.

Next year our adjusted EBITDA is going to double at the top end of our guidance range while revenue will only rise by 31%, so as we scale and the business generates more EBITDA these results are going to be more rounding errors.

The Bigger Picture

While the downgrade and share price dip—DraftKings shares fell 1.44% to $38.42 in after-hours trading—are a cause for concern, the company remains optimistic about its future. Robins pointed to the scaling of DraftKings’ operations, suggesting that as the company grows, its exposure to the unpredictable nature of sports outcomes will decrease. Furthermore, new product initiatives, including non-sports prediction markets, are being explored, with the possibility of

launching them in time for the next presidential election.

As DraftKings positions itself for sustained growth in 2025 and beyond, the key challenge will be managing the volatility that is inherent in the sports betting industry. While its third-quarter results demonstrate resilience, how the company navigates the remainder of 2024 will be critical to restoring investor confidence and meeting its ambitious targets for the future.