DraftKings crushed sales, but it has a marketing reliance problem
Who ya got?... DraftKings doesn't miss the days when Russian ping pong was the biggest live action on TV. Now, every major sports league is back in (bubble) action, and the sports betting app's shares have nearly 4X'd over the past year. Also helpful: 20 states (plus DC) have legalized online sports betting, and more are working on it. On Friday, DraftKings shares popped 6% after it raised its revenue outlook for 2021 and delivered strong sales:
- 2X: DraftKings' revenue more than doubled compared to the same period in 2019, as people hit the screens instead of the stadiums.
- $65: The average revenue DraftKings made per monthly user, up from $42 in 2019. It had ~1.5M monthly paying users last quarter.
Love don't cost a thing... but attention does. DraftKings now says it's the top iGaming operator in the US, but that flex-worthy title comes at a price: DraftKings spent nearly $500M on sales and marketing in 2020 — that's ~80% of its revenue for the year. It basically spent 80 cents for every $1 of sales it brought in. Think: commercials, FB ads, and $500 sign-up bonus promos. While that helped it grow sales and users, DraftKings lost ~$844M for the year.
- Airbnb is taking the opposite approach: In 2020, Airbnb pulled back on all marketing because its bookings took a pandemic plunge.
- Then something weird happened: Airbnb's site traffic bounced back to 95% of 2019 levels without any marketing spend. Last quarter, 90% of Airbnb's traffic was unpaid.
- Now, Airbnb CEO Brian Chesky says the company will never spend as much on marketing (as a % of sales) as it did pre-pandemic.
"Go-to" marketing is the best marketing... DraftKings has serious competitors like FanDuel, William Hill, and Penn National Gaming. Meanwhile, Airbnb is the clear go-to when people look for short-term rentals. Chesky thinks Airbnb doesn't need all that marketing, because "it's a noun and a verb in pop culture" (#flex). Companies like DraftKings and DoorDash rely on expensive promos to snag customers from competitors, but that "loyalty" can fade easily. Having "go-to" status reduces the need for marketing, increasing the chances of profitability.