DKNG Q3 2026 earnings call transcript, November 6, 2026

filed with the SEC. Hosting the call today, we have Jason Robbins, Chief Executive Officer and Co-Founder of DraftKings, who will share some opening remarks and an update on our business. Following Jason's remarks, our Chief Financial Officer, Alan Ellingson, will provide a review of our financials. We will then open the line to questions. I will now turn the call over to Jason Robbins.

Good morning, everyone, and thank you all for joining. We had a pivotal third quarter. We have been rapidly building our predictions offering to capture the significant opportunity we are seeing in this quarter that showed up in our results. More than 1.6 million customers have now engaged with our predictions offering year to date, which is already powering growth across the business. In the third quarter, monthly unique payers increased 13% year over year and sports consumer volume increased 22% year over year, driving total revenue growth of 16% year over year. Due to the compelling data and excellent returns we are seeing year to date, we have increased our 2026 adjusted EBITDA investment and predictions to $650 million to $700 million. Our predictions customers are highly engaged, retaining at high levels and trading significant volume. In totality, we expect our 2026 cohort to pay back in approximately 20 months, well below our two year payback target. When we combine the ramp in our predictions business with our strong core business, we believe we are set up for an exceptional 2027. We expect total revenue to grow 17% at the midpoint of our guidance, boosted by predictions revenue of $700 million at the midpoint. Predictions customers we are acquiring today should begin contributing meaningful gross profit going into next year, and we expect the adjusted EBITDA investment predictions to step down to $300 million at the midpoint. In the core, we expect adjusted EBITDA to grow to $1.2 billion at the midpoint, powered by steady sportsbook growth, accelerating iGaming growth from this year's investments, and

at the midpoint, adjusted EBITDA margin in the core business expands approximately 370 basis points in 2026 and another approximately 360 basis points in 2027 to approximately 18%, and we are focused on continuing that expansion. Altogether, we expect fiscal year 2027 adjusted EBITDA of $800 million to $1 billion. Let me start with predictions and why we are investing more. Across our business, we follow the data and under right to strict payback periods and we lean in when we see strong returns. Our 2026 predictions cohort is outperforming the two-year paybacks we targeted and is already run rating to approximately $350 million in annualized gross profit. We are seeing retention engagement of newly acquired predictions customers in line with sportsbook levels. Additionally, we are observing attractive take rates of approximately 11.1% on trades on DKX across brokerage, exchange, and market making in September. We captured approximately two thirds of that gross revenue, with third-party market makers capturing the rest. The results have been remarkable. In just a few months, we have become the clear number three predictions exchanged by total volume. In October, annualized consumer volume reached $10.1 billion, up nearly 3x from July, and annualized total volume traded reached $56.8 billion, up over 5x from July, as combos grow as a share of our volume. The growth of our predictions are...

Our sports predictions offering has followed the same playbook that made our sportsbook offering number one in the industry, an easy-to-use interface powered by vertically integrated technology and our proprietary trading and sports data infrastructure. Our sports predictions offering is now best-in-class, anchored by a content library that is unmatched in the space. This translates to the depth of our customer experience, as DKX lists more than 3x as many game-level markets as our nearest competitor across our largest sports, including the NFL, NBA, and college football. Customers are responding to that depth, with combos reaching 27% of consumer volume in October and more than 70% of our customers trading combos in the month. Vertical integration is one of our key differentiators. We own the brokerage, the exchange, and the market maker, which lets us control our offering roadmap, innovate faster, and capture more of the economics across the stack. It also strengthens the quality of our revenue. A substantial and growing portion of our predictions gross revenue now comes from maker and taker fees, a low volatility, high gross margin revenue stream. We are also increasingly excited about the emerging non-sports opportunity. Nearly 20% of our predictions customers have already traded non-sports markets, and non-sports consumer volume per customer is on par with sports consumer volume per customer to date. Crypto is leading the way, approaching double-digit share of total consumer volume in recent weeks, and we expect it to grow as we migrate crypto markets to DKX, which we are targeting to do over the next month.

We are investing with discipline in our balance. The balance sheet is strong. We have maintained our cash position at approximately $1.1 billion through this investment cycle. We expect to generate significant excess free cash flow in 2027, even after funding our predictions investment, and we expect predictions itself to generate free cash flow in 2028. Our returns are attractive across a wide range of outcomes, in part because we are driving strong cross out into our other offerings such as pick six lottery and non sports predictions, even if sports contracts were to end in July 2028. We estimate our 2026 cohort would be fully paid back by that date. By then, our 2027 cohort would be more than 50% paid back, and we'd expect that cohort to fully pay back within four years without sports contracts. A recent performance reinforces our belief that we are in a win-win position no matter how any future court ruling plays out. Now, turning to the core business. Sportsbook net revenue grew 36% year over year in the third quarter, with net revenue margin expanding approximately 120 basis points. to 6.4%. Handle growth was also strong at 12% and would likely have been even higher, if not for the significant increase in sportsbook net revenue margin. The World Cup provided a boost, which was fully offset by one fewer week of college football and NFL. The 12% growth number is a true like for like comparison.

We continue to see healthy handle and revenue growth, further substantiating our view that prediction market operators are having no discernible impact on our sportsbook business. Our sportsbook hold rate eclipsed 11%. And our parlay mix continues to grow rapidly, increasing 300 basis points year over year. For the fourth consecutive quarter, our handle share across sportsbook states improved year over year, and our GGR share also increased year over year. In the third quarter, iGaming customer acquisition grew 76% year over year and gross revenue growth accelerated to 7% year over year, while net revenue grew 2% as we invest in promotions to welcome those new customers. That growth reflects a deliberate multi-quarter plan to accelerate our ICANN. We revamped our already top-rated offering, debuted exclusive content such as the Cashingo franchise, and introduced new rewards and merchandising. Seeing strong early returns, we stepped up this effort in the third quarter and fourth quarter to date, investing incrementally in marketing and new customer promotions. The trends are encouraging. Underlying engagement is strong. October paid active days, or active customers multiplied by days engaged on the app, grew 24% year over year. And October gross revenue growth... accelerated to 12%. As a result, we expect these investments to accelerate iGaming revenue growth in fiscal year 2027. We also remain firmly focused on managing our cost structure. In the third quarter, adjusted operating expense declined year over year, excluding predictions. In 2027, we expect significant operating leverage in our core business driven by national marketing efficiencies in states mature and cost programs designed to optimize how we work. We have never had more ways to win. We're super

rep. Bring sportsbook predictions, iGaming and more together for customers across the country. We will continue to strengthen that advantage as we build out our offering and optimize our marketing and cross sell. With the NFL and NBA seasons in full swing and the holiday temp polls ahead, we expect the fourth quarter to set us up to enter 2027 with strong momentum. As we look ahead, we will continue to be disciplined and data driven in how we deploy our capital to maximize long term shareholder returns. With that, I will turn it over to Alan Ellingson, our chief financial officer.

I'll hit the financial highlights, including our third quarter performance and our fiscal year 2026 and 2027 guide. Please note that all income statement measures discussed, except for revenue, are on a non-GAAP, adjusted EBITDA basis. As Jason mentioned, total revenue increased 16% year-over-year in the third quarter to $1.33 billion, driven by continued healthy investment engagement and higher sportsbook net revenue margin. Monthly unique payers or MUPs increased 13% year-over-year to $4.1 million, and average revenue per MUP increased 3% year-over-year to $109. This top line strength was driven by robust demand across our offerings. Sports consumer volumes increased 22% year-over-year. Sportsbook net revenue grew 36% year-over-year on 12% handle growth and approximately 120 basis points of net revenue margin expansion to 6.4%, even as our parlay mix increased 300 basis points year-over-year. And I gave me customer acquisition grew 76% year-over-year and gross revenue grew 7% year-over-year, while net revenue grew 2% as we invested in promotions to welcome these new customers. We also continue to operate with discipline on the cost side. As Jason mentioned, adjusted operating expense excluding predictions declined year-over-year in the third quarter. I want to reiterate that we will remain focused on improving the efficiency of our cost structure, which should continue to drive margin expansion in our core business in 2027.

Third quarter adjusted EBITDA was negative $317 million, primarily reflecting the increased investment in predictions. Now, we'll touch on our fiscal year 2026 and 2027 guidance. Last quarter, we communicated fiscal year 2026 guidance of $6.5 billion to $6.9 billion in revenue and $700 million to $900 million in adjusted EBITDA, with our core business on track to generate approximately $1 billion of adjusted EBITDA. Today, we are updating our fiscal year 2026 guidance to $6.35 million. to $6.55 billion in revenue and $175 million to $275 million in adjusted EBITDA, primarily reflecting our increased adjusted EBITDA investment and predictions of $650 million to $700 million. We expect adjusted EBITDA from the core business of $875 million to $925 million, which reflects our decision to invest further in iGaming growth, as well as the impact of modestly customer-friendly sport outcomes. We expect adjusted EBITDA investment. predictions of $175 million to $225 million in the fourth quarter, and predictions revenue will be immaterial in fiscal year 2026, as new customer promotions will offset the lion's share of the gross revenue generated. For fiscal year 2027, we are introducing revenue guidance of $7.35 billion to $7.75 billion, an increase of 17% year-over-year at the midpoint, and adjusted EBITDA guidance of $800 million to $1 billion. We expect revenue from the core business of $6.6 billion.

$7 billion to $7 billion, up 4% to 9% year-over-year compared to the midpoint of fiscal year 2026 guidance, and adjusted EBITDA from the core business of $1.15 billion to $1.25 billion, or $1.2 billion at the midpoint in 2027. Our core business is strong, powered by steady sportsbook growth, accelerating iGaming growth, and significant operating leverage. That takes adjusted EBITDA margin in the core business to approximately 18% in 2027. Up approximately 360 basis points from this year at the midpoint of guidance. We expect prediction revenues of $650 million to $750 million, and adjust EBITDA investments in predictions of $250 million to $350 million, stepping down to $300 million at the midpoint, as the customers we acquired this year contribute meaningful gross profit. We will continue to monitor regulatory developments related to sports predictions, and we'll adjust our level of predictions investments accordingly. Regardless, we expect predictions to be a tailwind to adjust EBITDA.

in 2028. As always, we remain disciplined in how we allocate capital. Our core business continues to generate significant free cash flow, which we are deploying to fund growth in our predictions business at attractive payback periods. We have maintained our cash position at approximately $1.1 billion through the investment cycle, and we expect to generate significant excess free cash flows in 2027, even after funding our prediction investments. That concludes our remarks, and we will now open the line for questions.

Your first question comes from the line of Julie Hoover from Bank of America. Your line is open. Please go ahead.

Your line is open. Please go ahead.

P. Morgan. Your line is open. Please go ahead.

Thank you for your continued support and look forward to seeing you all next quarter.