DraftKings Looks to Hit Jackpot With Lottery Acquisition, Digital Innovation

For many sports betting companies, the Super Bowl is, well, their Super Bowl.

But daily fantasy sports contest and sports betting company DraftKings is more focused on winning the lottery, announcing Thursday (Feb. 15) that it has reached an agreement to acquire Jackpocket, a leading digital lottery app in the United States, for total consideration of approximately $750 million.

On Friday’s (Feb. 16) fourth-quarter 2023 earnings call, DraftKings executives told investors that they anticipated “significant customer overlap between Jackpocket and DraftKings, implying a substantial cross-sell opportunity between product offerings.”

“There’s all sorts of levers you can pull, the important thing is getting the right products in front of the right customers,” said DraftKings Co-founder and Chief Executive Officer Jason D. Robins.

Still, the sports betting and iGaming platform’s shares wobbled in post-market trading Thursday, falling as much as 10%, due to DrafKings reporting quarterly revenue that was up 44% but still missed analyst estimates.

“Our financial results are only part of the story. We gained significant share, including taking the #1 perch in combined OSB and iGaming Gross Gaming Revenue (“GGR”) share in the U.S for the third quarter. We dramatically improved our product and customer experience and made multiple operational improvements to better serve our customers and operate more efficiently,” Robins wrote in his letter to shareholders.

“We continued to acquire customers efficiently. We retained customers through a customer-centric and product-focused mindset,” DraftKings CFO Jason Park added, saying customer acquisition, retention and engagement continue to exceed expectations due to ongoing product innovation and marketing optimization initiatives.

“Absolutely retention is improving,” Park told investors. “It’s really just a product advancement more than anything else … we are testing all the time and finding wins.”

“We had a blow-out quarter from a customer acquisition rate,” Robins said.

These customer trends accounted for $90 million of DraftKings’ revenue improvement and $35 million of its Adjusted EBITDA improvement.

DraftKings’ stock had, by Friday, recovered most of its drop.

Read more: DraftKings Expects Online Gaming to Reach $30 Billion by 2028

Drivers of differentiation highlighted by the company in its materials include DraftKings’ automated back-end operations within a complex regulatory environment, supported by a portfolio of patents and internally developed software, all powering digital offerings with a seamless customer experience while enjoying scale that drives efficient product investments due to the large customer monetization opportunity.

“We continue to be excited about the technology-driven initiatives we are exploring to operate more efficiently. DraftKings has already been leveraging data science and machine learning for the past decade throughout our business in areas such as home page personalization and risk management through line setting optimization and same game parlay simulations. We are excited by the possibility of incorporating new technologies such as artificial intelligence into our technology and infrastructure to position us for further success and differentiation,” CFO Park said.

“We are still in the early innings of the US online gaming industry, and there is still share that can be gained through continued innovation and operational excellence… we also know that being the most efficient online gaming company is just as big of an advantage as being the most innovative,” added Robins.

As for the company’s fourth quarter 2023 financial results, for the period ended Dec. 31, DraftKings reported a loss of 10 cents a share, down from the loss of 53 cents a share during 4Q22.

DraftKings’ fourth-quarter revenue rose to $1.23 billion, up 44% from $855 million a year earlier, but still around $100 million below analyst estimates of $1.24 billion.

See also: DraftKings’ Customer-Centric Strategy Avoids Mention of Any Specific Digital Innovations

The gaming platform highlighted in its materials that annual year-over-year customer retention “has been 90% for customers that engaged with us in the twelve months following their acquisition quarter, while our average annual retention rate has been 87% over a 5-year period from a customer’s acquisition quarter.”

The company reported that monthly unique players rose to 3.5 million in the fourth quarter, a jump of 37% from a year earlier.

In other partnership news, DraftKings announced a multi-year sports betting partnership with media platform Barstool Sports set to begin after the Super Bowl.

“This is about as good as it gets on us having historical data to underwrite this deal,” CFO park said about the Barstool partnership.

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