FanDuel posts profitable quarter despite leaning in 'harder' on customer acquisition

·3 min read

FanDuel Sportsbook (PDYPY) reported its first quarterly profit on Friday, marking a seismic shift in the sports gambling industry.

The company’s CEO Amy Howe stated the positive balance sheet came even as FanDuel leaned in harder than expected to acquire customers.

“Q2 profitability was a function of the player values [being] incredibly strong,” Howe told Yahoo Finance Live (video above). “And what we’re seeing candidly coming out of the Super Bowl, is if you look at the relationship between our player values and customer acquisition costs, that formula was great.”

FanDuel and competitors such as DraftKings (DKNG), Caesars Entertainment (CZR), BetMGM (MGM), and Penn National (PENN) have all spent generously on advertising, content acquisitions, and promotional betting lines as new states have legalized mobile sports wagering. This has frequently resulted in digital sportsbooks presenting quarterly losses in Adjusted EBITDA.

But with no new states arriving during the second quarter and a pullback in marketing spend in New York after the blitz of the first quarter, FanDuel reported a $22 million adjusted EBITDA for the second quarter.

Other portions of the business were booming as well. FanDuel leads the sector in 13 of 15 operating markets, according to Howe. With a 51% market share of gross gaming revenue among sportsbooks in states where the company operates, FanDuel has more than double the next closest competitor, according to a slide in the investor presentation.

“We’ve always been very efficient at how we bring customers onto the platform,” Howe said. “We’ve always had a strong brand, one we’ve engaged with phenomenal talent like Pat McAfee. We have innovations with TNT and Turner. The NBA was a big part of Q2 this year. The acquisition engine is getting stronger for us everyday.”

In the earnings release, Flutter Entertainment (FanDuel’s parent company) reiterated a target for full-year profitability for FanDuel in 2023.

The FanDuel Sportsbook at Live! Casino & Hotel Maryland launches sports betting, Dec. 10, 2021. (Kim Hairston/The Baltimore Sun/Tribune News Service via Getty Images)
The FanDuel Sportsbook at Live! Casino & Hotel Maryland launches sports betting, Dec. 10, 2021. (Kim Hairston/The Baltimore Sun/Tribune News Service via Getty Images)

However, that will largely depend on if mobile sports wagering is voted in by Californians this fall, Howe noted. Opening operations in the country’s most populated state would require a steep increase in spending for FanDuel, and thus elongate the path to profitability.

Howe, like DraftKings CEO Jason Robins, doesn’t believe the gloomy macroeconomic backdrop will be materially detrimental to business, either. She noted an overwhelming percentage of FanDuel customers are “casual gamers,” meaning they’re not betting significant sums per bet. Since the cost for entertainment falls on the consumers hands in the gambling space, rising inflation and thinner consumer wallets aren’t expected to be major issues.

“Customers are viewing this as a form of entertainment,” Howe said. “If we keep giving a great proposition, we feel confident we’ll maintain the fundamentals. It’s something we’re keeping our eye on.”

While FanDuel struck positive in the second quarter, the company isn’t planning to stop spending on promotions and expansion. FanDuel still expects to launch in Kansas during Q4 2022. Rumors have swirled the company is launching a 24-hour sports network in September while the company is also actively pursuing a brick-and-mortar location in Las Vegas.

“I can tell you we’re always looking at the equation, the value of the customer, and what it takes for us to get them on the platform,” Howe said. “As long as we see solid paybacks within the 12 to 18 month range, we’re going to keep spending.”

Josh is a producer and reporter for Yahoo Finance.

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