DraftKings 44% increase in Q4 revenue overshadowed in call by Jackpocket acquisition

February 16, 2024 1:15 PM
Photo: Shutterstock
  • Rege Behe, CDC Gaming Reports
February 16, 2024 1:15 PM
  • Rege Behe, CDC Gaming Reports

DraftKings Q4 2023 earnings call Friday discussed the company’s financials, but a $750 million acquisition of Jackpocket and a multiyear partnership with Barstool Sports quickly took the narrative of the call.

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For the quarter, DraftKings posted revenue of $1.23 billion, a 44% increase compared to Q4 2022. Revenue for 2023 reached $3.66 billion compared to $2.24 billion in 2022, a 44% increase.

The operator also shrank its loss in Q4 to $44.6 million compared to $242.7 million in Q4 2022, and a loss of $802.1 million in 2023 compared to a net loss of $1.38 billion in 2022. Adjusted EBITDA in Q4 was $151.0 million, compared to -$49.9 million in Q4 2022.

Despite the double digit revenue increase and a shrinking loss, two transactions made by DraftKings this week overshadowed the financials: Thursday’s acquisition of Jackpocket, an online lottery app, for $750 million, and a multiyear partnership with Barstool Sports announced just after the Super Bowl ended.

DraftKings CEO Jason Robins thinks Jackpocket will be similar to DraftKings’ daily fantasy sports offerings

“It’s not something that is going drive top-line growth,” Robins said. “That’s really the OSB and igaming. It’s more a vehicle to be able to continue to acquire customers and engage customers that we don’t have yet.”

Robins also noted that there’s “a natural overlap” between DraftKings and Jackpocket customers.

“I think there’s an opportunity to market more effectively to customers in their database who may still be playing OSB and igaming, but with competitors,” Robins said.

Unlike igaming and online sports betting, Robins said part of the appeal of Jackpocket is there’s no legislative action needed to get ilottery approved – it’s up to individual state lottery commissions to permit online lottery play. Jackpocket also could act as a bridge to DraftKings’ content if more states legalize igaming and online sports betting.

“It’ll grow the lottery market for new customers,” Robins said. “I think it’s a great opportunity to get a product, potentially, that’s in the vast majority of U.S. states.  … I think as times goes on, if you, like us, believe that more and more states will continue to launch igaming, it’ll be the gift that keeps on giving.”

Before acquiring Jackpocket, DraftKings researched the general lottery market. Robins was questioned if traditional lottery players, who tend to be older men and women, mirror the new acquisition’s customer base.

“We find that people who are buying lottery tickets on Jackpocket, they’re using mobile devices, to do so,” Robins said. “They’re younger, a more tech savvy customer. It’s a different demographic than the average lottery customer, and that’s part of why it’s growing the market, which is great. It’s similar to the online bettor versus the retail bettor. … And that’s kind of what the appeal is, that this is a disruptive real thing in a market that the customer wants. People don’t buy lottery tickets today, I think, sometimes due to convenience.”

Robins added, “it just makes sense when you give people a digital and mobile option, that you’re going to grow the market and reach a new demographic.”

Details about the new partnership with Barstool Sports are still emerging, but Robins said he was “thrilled” to be again working with Dave Portnoy’s company.

“It’s a partner that we know very well and have kind of data on, so we felt really good,” Robins said. “I mean, this is about as good as it gets in terms of us having historical data and being to underwrite the deal. It’s really exciting and we believe it’ll be a strong performer for us.”

Analysts responded to DraftKings’ earnings report.

J.P. Morgan analyst Joseph Greff wrote that “Following solid underlying, hold-adjusted 4Q23 results and an equally upbeat 2024 outlook, we bump our 2024 revenue, EBITDA, free cash flow, and adjusted EPS estimates to $4.8 billion, $486 million, $366 million, and $0.91, and see this growing to $6.38 billion, $1.44 billion, $1.3 billion and $2.97 in 2026 (our estimates do not reflect the just-announced and pending Jackpocket acquisition).  Our projections reflect its currently strong technology and product momentum resulting in higher retention, increasing parlay mix, and reduced promotions and external marketing expenses, benefitting from its scale position, and resulting in increasing EBITDA flow-through.”

Truist Securities analyst Barry Jonas Thursday wrote that “DraftKings posted a rare miss to ests/guidance in Q4, largely due unfavorable sport outcomes in November. Low hold was well telegraphed to the Street, but the impact was greater than modeled. Adjusting for neutral hold, EBITDA would have been +34% ahead of the high end of Q4 guidance.”

At 1:10 pm, DraftKings’s stock on the Nasdaq was $44.50, up 0.44%.