DraftKings’ revenue continued to rocket in Q1, growing 252.7% to $312.3m, but losses widened as the operator’s sky-high costs of sales and marketing costs continued to grow faster than revenue.
Following the revenue growth, DraftKings upped its full-year revenue guidance to between $1.05bn and $1.15bn. The guidance had previously been set between $900m and $1bn.
“We are raising our revenue outlook for 2021 due to the outperformance of our core business in the first quarter and our expectation for continued healthy growth,” DraftKings chief financial officer Jason Park said.
As DraftKings closed its merger with betting supplier SBTech in April 2020, the business provided comparisons to both its actual earnings in Q1 of 2020 and its pro-forma results, which state the combined earnings of the two businesses. On a pro-forma basis, DraftKings’ revenue was up 175.3% year-on-year.
Of the operator’s $312.3m in revenue, $272.7m came from online gaming, up 225.8% from the pre-merger DraftKings’ total in 2020. A further $31.4m came from online software from the business segment formerly known as SBTech, while $8.2m came from other sources, mostly retail sports betting and other B2C income streams.
The vast majority of DraftKings’ revenue – at $280.1m, up 208.5% from the pre-merger business – came from the US, with the remaining $32.2m from elsewhere.
The operator said the revenue increase was due to “strong customer acquisition and retention, as well as new state launches in Michigan and Virginia”.
“DraftKings is off to an outstanding start in 2021,” DraftKings’ co-founder, chief executive and chairman Jason Robins (pictured) said.
However, DraftKings costs of revenue – including gambling taxes and revenue share agreements – grew even faster than revenue, by 322.0% to $183.2m, or by 167.6% on a pro-forma basis. Of this increase, $31.7m was due to costs related to SBTech, including $19.7m in amortisation costs for the supplier. However, B2C costs of revenue also still grew faster than B2C revenue, which the operator said was due to fast growth in igaming and betting compared to daily fantasy sports.
DraftKings also paid sales and revenue expenses of $226.7m, up 325.8% year-on-year or 299.3% on a pro-forma basis as the operator continued to increase its advertising presence, particularly in newly regulated states. A report from television data business Nielsen yesterday revealed that spending on television ads for online gambling had skyrocketed in recent years, with DraftKings second in spend behind FanDuel with $43.6m.
The operator’s product and technology costs came to $51.2m, up 211.3% when compared with the legacy DraftKings business but up 88.8% when compared to DraftKings and SBTech’s combined spend. The operator is currently in the process of migrating from Kambi’s platform onto the former SBTech’s.
Robins added that besides the migration, other product updates will include the launch of DraftKings Social in the coming weeks, which will allow players to chat, share bets and follow one another, as well as the acquisition of BlueRibbon software, which was announced last month.
“We continued to make progress and remain on track with the migration to our own in-house proprietary sports betting engine, strengthened our content and technology capabilities with the acquisitions of VSiN and BlueRibbon Software, and invested in further differentiating our product offering with the upcoming rollout of social functionality in our DFS and mobile Sportsbook apps,” Robins said.
General and administrative costs came to $169.0m, up more than 300% year-on-year.
As a result of these costs, DraftKings made an operating loss of $324.8m, close to five times the loss DraftKings made in Q1 of 2020 or four times the combined loss of DraftKings and SBTech.
After interest income and a loss due to the remeasurement of liabilities, DraftKings’ loss came to $350.8m, compared to a $68.5m loss in 2020, or an $84.0m loss when SBTech is accounted for.
After $4.6m in taxes, the business made a final loss of $346.3m,up 404.7% from the loss it made in Q1 of 2020 or 322.0% from Q1 of 2020’s pro-forma loss.
DraftKings also revealed that its earnings before interest, tax, depreciation and amortisation (EBITDA) came to a loss of $139.3m.
In March, the business upped its long-term EBITDA guidance from $1bn to $1.7bn. It said it expected to reach this target five years after 65% of the US population have access to legal online betting in their home state, 30% have access to legal igaming and 64% of Canada have both legal betting and igaming.
Analysts at Regulus also commented on the results, saying the scale and financial headroom for DraftKings to prove its business model or modify it could be a problem for other operators in the US.
“This level of financial firepower and the willingness to deploy it so aggressively rewrites the rules of online gambling engagement that have applied for around 20 years,” Regulus said.
“Competing with a nearly $1.0bn annual marketing budget running at 80% revenue and backed up with $2.8bn of cash requires significant differentiation, very deep pockets, the patience of Job, or even deeper reserves of bloodyminded stupidity.”