DraftKings Wrapped Up Its Investor Day. These Are the Main Takeaways.

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DraftKings

is on its way to achieving a path to profitability as it works to increase gross margins and reduce spending on customer acquisition, the company said at its annual investor day Thursday.

The online sports betting company reiterated its belief that five more states would become contribution profit positive in fiscal 2022, after five states, including New Jersey, went positive in 2021. If no new states are added in the current fiscal year, the company could be contribution profit all around.

As states turn positive, margins will increase as well, the company said. DraftKings estimates a 56% gross margin rate at maturity, compared to its calculation of 50% last year. The company increased its long-term adjusted Ebitda, or earnings before interest, taxes, depreciation, and amortization, outlook to $2.1 billion from $1.7 billion, assuming 65% of the U.S. population has access to legalized online sports betting, and 30% have access to iGaming.

The company also said it expects the addressable market in North America expanding to $80 billion from $67 billion as new states legalize online betting.

While market expansion is a boon in the long run for DraftKings, the company has had to spend more than expected in carving out the market and acquiring new customers, which has weighed on profit margins and made it harder to reach profitability, said Needham analyst Bernie McTernan ahead of the company’s investor day.

But the company sees that changing soon as it fine-tunes its customer acquisition strategy. DraftKings is acquiring customers faster and more efficiently by investing early in new states, which is helping boost margins, management said.

“We are effectively pulling forward marketing to invest more for a bigger business,” said Chief Financial Officer Jason Park during the company’s investors’ presentation.

As the online sports betting marketplace matures, management believes new customer adds will slow, which could bring down customer acquisition costs. DraftKings isn’t concerned about the deceleration, saying it would be an opportunity to optimize marketing and funnel users to efficient channels.

Moreover, the company’s user retention remains strong, with an 83% customer retention rate during the first year that rose to 96% in the third year. The revenue of the retained players “more than makes up for the customer attrition,” Park added, with net revenue per retained user growth rising 143% after three years.

DraftKings also predicts it will retain a significant share of the market, forecasting a 20% to 30% market share for online sports betting at maturity and 20% to 25% share for iGaming. Management expects total revenue of between $6.7 billion to $9.5 billion across its segments in the U.S. and Canada upon maturity.

Shares of DraftKings were down 3% to $22.46 on Thursday, reversing the gains made in premarket trading.

Write to Sabrina Escobar at [email protected]