In case you missed it:

Duolingo is a leader in app-based language learning. It’s now expanding into music and math. While this is a learning-based platform, the learning is meant to be fun, competitive, social and engaging. This is a proven formula to keep users coming back. The foundation driving DUOL’s business model is a commitment to rapid, obsessive iterations of every single piece of its product to ensure that every facet is always getting better. Constantly split-testing every single variable is in its DNA. It leads with product, rather than advertising and relies on word-of-mouth growth to power the vast majority of its success. It then supplements that with efficient marketing (from social media to the Super Bowl) to create viral moments and demand accelerants. This results in a low Customer Acquisition Cost (CAC).

Guidance includes Duolingo English Test (DET) weakness, as international student attendance at USA universities is challenged. It also doesn’t rely on a normalization in its social media engine (much more on this later).

Duolingo trades for 40x forward FCF & 58x forward EPS. FCF is expected to compound at a 38% clip for the next two years. It also trades for 55x forward EPS. EPS is expected to compound at a 40% clip for the next two years.

Modest User Growth Weakness & Mid-Quarter Drama:

As many of you know, there was considerable mid-quarter noise regarding Duolingo. Their talented co-founder/CEO Luis von Ahn excitedly took to social media to share Duolingo’s plans on being an AI-first company. This was very well received internally, but led to considerable user backlash against the company and souring social media sentiment. Per von Ahn, he just did not word things very well, and led people to assume AI would replace their workforce, rather than supporting it. Some took to social media to announce their product boycotts and this is what led to DAU growth coming in modestly below expectations. This was specific to the USA, which is why weakness was specific to that single market.

The boycotts very modestly hit top-of-funnel growth, while Duolingo was forced to pivot from its edgy, routinely viral social media content in a bid to recover positive sentiment trends. That further slowed growth down. Encouragingly, DAU growth stabilized as they improved and normalized overall social media sentiment. That, along with rising subscriber retention, represents proof that this weakness was not related to competition or a worsening value proposition. Notably, it also had absolutely nothing to do with language-based GenAI products from OpenAI. That has been irrelevant for Duolingo’s business, just like their launch today showing a very simple game being made with the models will be too. Not structural… ephemeral… great news. 

The team expects to maintain lofty 40% DAU growth next quarter. They are confident that the drama is behind them, optimistic that their world-class social media marketing will fully normalize in the coming weeks, and adamant that it will be back to business as usual… I think they’re right. Luis von Ahn is an elite founder and an elite operator who is data-driven and always improving. This will simply be a learning experience and, I think, an immaterial blip on the radar. 

And one more note here. This is what Duolingo’s financials look like when they have a “challenging quarter.” Their “challenging quarter,” entailing 40% top-line growth with expanding margins and only a very modest user miss, is simply a testament to how impressive this firm truly is. Other companies would dream of this “challenging quarter” being their best one. 

On falling Q/Q monthly active users (MAUs), Duolingo is not focused on this metric. Language learners need to engage daily to get value from this product and to have a good chance of actually paying for it. These are not the users who are likely to power their growth engine. Furthermore, Duolingo got a massive boost from their “Dead Duo” campaign in Q1, which drew in casual users and drove that specific metric. The Q/Q decline is that temporary spike reverting; they’re “not worried” about this.

More on USA DAU Growth:

DAU growth in the USA is slowing faster than leadership wants it to, and it knows exactly why.

They spend nothing on marketing and rely solely on organic word-of-mouth growth in the U.S. They used to spend nothing in places like Mexico, and had a similar growth issue before adding a very modest performance marketing budget. That did the trick in Mexico and durably reaccelerated growth there.  Management believes that the same will be true here, and plans to create a small budget for USA marketing for the rest of 2025. As that kicks in and it gets back to its viral social media ways, expect growth here to improve. The runway in all of their markets remains massive, and its fastest growth continues to come from some of its most mature counties. That tells us that huge opportunities remain and spending productive marketing dollars to capture this market is the right move.

Duolingo Super & Max:

Duolingo Super was actually the subscription tier that drove the firm’s outperformance – not Max. While outperformance for Super does cannibalize a bit of Max demand, they do want Max to be growing more quickly and there are firm plans in place for that. It ticked from 7% of total subs to 8% Q/Q, and the goal is further acceleration. A big piece of that initiative will be making the FaceTime product better for beginners. It’s currently great for advanced speakers, but less capable students are having a hard time with it, as they lack the vocabulary for a full conversation. To help, Duolingo is adding hybrid conversational content that combines the language being learned with a user’s native tongue. 

Leadership is excited about new research clearly showing this product improves the speed of learning, and they want that to work for a larger portion of the user base. Beyond this, they still haven’t localized pricing in important markets like India. With model costs plummeting, pricing this package for more markets will get easier, and friction will wane.

With this team, you know they’ll rapidly test, test and test some more until KPI optimization is obvious and performance improves. This is the split-testing and iteration king, with more data and a better understanding of how to use it than the competition.

China:

China outperformed internal expectations during the quarter. This was thanks to a large collaboration with Luckin Coffee that made a lot of their stores Duolingo-themed (with Duolingo drinks). This momentum is coming before Duolingo is even allowed to debut its higher-priced Max offering. They’re awaiting approval from regulators to run the models needed for this product offering. When that happens, it should unlock a lot more growth. Timing uncertain.

App Store Fees:

Duolingo is now testing moving some iPhone and iOS users to its own web-based checkout product. This is leading to some conversion rate declines, as external checkout pages always do, but the profit benefit is more than enough to make up for that small negative. This change allows Duolingo to pocket a nearly 30% take rate for new subscriptions and renewals in the USA. Notably, the impact of this will be quite modest in 2025. Most of the subscriptions they sell are annual, so it will take a full year for renewals to reflect this change. Furthermore, we don’t yet know if this app store side-loading will be allowed past 2025. If that happens, it could provide a large GPM tailwind, as most of its input costs are app store fees. That’s exciting to think about, but we’ll have to see how regulations shake out.

Constant Core Product Improvements:

Duolingo’s fantastic growth engine remains product-driven… not marketing-driven like its competition. They continue to obsessively work on extracting a single drop of engagement at a time, knowing these gains add up over time into something quite meaningful.

This quarter, the change highlighted was its move from “hearts” to “energy.” Hearts are like remaining lives, which fall with wrong answers. When users run out, they either need to wait or pay for more access. Energy is “usage-based,” with energy being drawn as a user takes lessons… but rising if they have 5 correct answers in a row. It shifts to more positive reinforcement and has already boosted user growth, engagement and monetization. It’s very rare for a change like this to be positive for all 3 of those items. They expect to roll this out to their entire user base in the coming months and are quite confident in the change.

The team was asked about some social media blowback. This happens for every major change – just like when it changed the homepage in 2023. The complaints are from a very small cohort of users who got “very good at not paying or making mistakes.” This effectively allowed them to use the entire product offering for free while the energy format won’t… so obviously they’re not thrilled about the news.

New Product Categories:

The chess product is thriving. It’s up to 1M+ DAUs faster than any other launch and just a few months into full availability. This is still only for iPhone users and only in English, with far more expansion coming. Despite that, it has already surpassed math and music courses, with future tools such as live head-to-head matches adding to the momentum. They remain confident in math and music, with a brand new buyout of NextBeat’s music gaming team to support their goals.

While all new subjects are progressing nicely, the vast majority of the business is still language learning and they still haven’t tried to monetize any of this with standalone subscriptions. That will all come eventually, and should support materially incremental growth by 2027… many more subjects will come after that.

I am exhaling after this stellar performance. The boycott looks to be mostly anecdotal and entirely temporary. The margin-accretive growth engine remains elite and the remaining opportunities are massive. This name will continue to react to language product launches from companies like OpenAI (a preferred Duolingo partner). But? Those launches do not challenge its core value proposition. Duolingo thrives because it makes learning fun and competitive. It allows friends to battle against each other while they learn a new skill… and it makes us smarter in a highly engaging way. It’s a game… and chatbots are simply not a substitute.

I do think AI smartglasses will be a more compelling substitute for real-time translation than talking to a spouse or job interviewer with our face up to a phone… but scale, competitive gamification and constant product improvements are the secret ingredients at Duolingo. The former is tough to replicate… the latter ensures they stay ahead. I also think the team handled the social media drama very well. Nobody is perfect, but facing the modest mistake with self deprecation and candidness was something I found genuine. It made me like them even more, while this quarter provides needed confidence in holding my shares. 

The Trade Desk is the leading buy-side player in open internet advertising. The firm’s two most compelling revenue segments are streaming, where it has relationships with most major players, and retail media, where it works with countless Fortune 500 vendors.

Its platform allows advertisers to bid on & purchase unique impressions with surgical precision, scale and open reporting. Purchases are essentially made on an impression-by-impression basis, uplifting targeting efficacy and doubling ad return metrics. Needed data is infused into every purchasing decision to ensure placements provide optimal value.

Kokai is the name of its data-driven, AI-copilot infused platform. It combines TTD’s leading open internet scale with its vast roster of 3rd parties to inject more data and signal into each decision. It’s what tells advertisers who they should be targeting. Kokai does so through TTD’s decade of experience that allows it to essentially find groups of high intent “copy-cat customers” with similar interests. Advertisers onboard their first-party data (what TTD calls “concentrated data seeds”) and The Trade Desk does the rest. Kokai allows buyers to focus on whichever variable, key performance indicator (KPI) or campaign objective they’d like to. It allows all of this to be done in a self-serve fashion or in a fully-managed environment. Up to them. Finally, Kokai emulates the ease of data onboarding that has made Alphabet and Meta so popular.

Unified ID 2.0 (UID2) is its open internet, omni-channel identifier. It uses hashed emails to responsibly ensure consumer and brand security. It knows exactly who is accessing what site or app. Kokai tells you who to target, while UID2 is what tells you where they are. 

With this company, advertisers are freed from a need to commit millions at annual upfront events to reach audiences. They can commit to smaller purchases in real-time and with fantastic accuracy. No more guessing. No more “spray and pray.”

Other products include:

OpenPath and UID2 are meant to support the sell-side rather than supplant it. TTD does not want to build a sell-side platform. It wants to exclusively represent the buy-side to eliminate conflict of interest. Helping sell-siders with identity and supply chain is meant to help its buyers enjoy more success.

It beat revenue estimates by 1.2% & beat guidance by 1.7%. Excluding last year’s election, revenue rose by 20% Y/Y. Its 18.7% 2-year revenue CAGR compares to 26.6% last quarter and 22.9% 2 quarters ago.

Q3 “at least” revenue guidance slightly beat estimates. EBITDA guidance also slightly beat estimates.

As of right now, TTD trades for 34x forward EPS (at $62/share). The chart below is based on its share price before this evening’s decline. EPS is expected to rise by 7% this year, before resuming multi-year 20% compounding.

Kokai:

Kokai is working as planned for The Trade Desk. It’s infusing needed AI-inspired automation throughout every part of the buying process. It’s unleashing the full power of TTD’s massive open internet scale and making decision makers better at their jobs. To Founder/CEO Jeff Green, Kokai is what “finally utilizes one of the most under-appreciated data assets on the internet.” Model quality is tied to data quality… TTD has that in droves.

It’s making well-placed campaign optimizations extremely obvious and leaning on TTD’s world-class targeting, strong identification and leading open internet scale to ensure buyers are making the best decisions. Whether it’s AI forecasting, better publisher integrations via OpenPath (more later) or predictive clearing improvements, Kokai is a massive leap forward for TTD’s customers in every way. And while usability issues and customer confusion at launch initially slowed down the ramp, things are now in full swing. Nearly 75% of total Trade Desk volume is running through Kokai, and they reiterated plans to reach 100% by the end of 2025.

It’s nice to talk about how good Kokai is with ad buying, but we love data-driven evidence. Samsung is using the platform to increase target audience reach by 43% while Cash Rewards improved cost per acquisition in Asia by 73%. Generally speaking, average gains across its key performance indicators (KPIs) are already at 20%, and that’s “merely scratching the surface.” Leadership knows that getting more vocal and directly supporting product discovery will boost that incremental performance overtime… The product utility is already there. Perhaps the best evidence that this is gaining popularity among customers is that users are voting with their wallets by growing spend levels 20% faster than non-users.

“Advertisers are getting meaningfully better returns on their ad dollars, and they are doubling down on the open Internet and on us as a result… I’m confident it will buy better than every other platform pointed at the open internet.”

CEO Jeff Green

DealDesk is now in beta testing and is the “final piece of Kokai.” DealDesk offers a clear deal and communication pipeline between advertisers and publishers. It offers conflict of interest-free “deal quality scores” for both parties to know exactly how campaigns are performing – with an easy ability to rapidly tweak inventory tied to a specific channel if performance isn’t good. This works across a massive array of KPIs. The product makes it simple and rewarding for early adopters like Disney to carefully showcase their inventory, with data-rich explanations of audiences for buyers. Interest in this product was called “strong.”

OpenPath:

OpenPath has quickly grown to cover a “material” portion of overall TTD spend. It’s working as planned. Ad buyers are gaining a more direct and objective view of what they’re actually paying for, which is leading them to enhance returns and buy more impressions from publishers. Win-win. For example, the New York Post grew their programmatic display revenue by 97% since adding this product and getting closer to ad buyers. Hearst Newspapers is enjoying a 4x improvement to ad fill rates. Freestar boosted ad fill rate by 3x with it and juiced programmatic revenue by a full 27%.

Trade Desk’s acquisition of Sincera is already amplifying OpenPath & TTD’s overall value. As a reminder, OpenPath is a programmatic ad supply chain company determined to clean up the industry. They “shine a light on where advertising value is, where that value is being obscured and what signals advertisers value the most.” Sincera gives an overarching view of the supply chain to uncover which pieces of it are truly needed, and which are a waste. Trade Desk used this technology to debut “OpenSincera,” which extends its value across all of TTD’s relevant buying channels. It provides ad tech players seamless access to metadata (data tagging, categorizing and analyzing), leveraging an ability to enhance supply chain efficiency. This is already leading to publishers improving their ad experiences and performance, which will mean uniquely better client returns through TTD’s platform and more differentiation. Exactly what they wanted.

Separately, Sincera is also making Kokai a better product. With Sincera, Kokai automates selecting optimally profitable supply paths for identical impressions. Determining that before Kokai + Sincera was a tedious manual process for ad buyers.

Amazon:

Shockingly, leadership was asked about Amazon’s ad business and its demand-side platform (DSP) as a competitive threat to Trade Desk. Green reminded everyone that Amazon cannot possibly be an objective ad buyer. They can build a fantastically successful ad business regardless, but that still leaves a large void within the trillion-dollar industry for a scaled, highly capable DSP that doesn’t also own inventory. Enter TTD. Amazon has an inherent motivation to support Prime Video and its marketplace that prevents unbiased ad placement from happening, just like it did for Google for so many years. Conversely, TTD offers broad access to lucrative streaming and retail media markets without that glaringly obvious conflict of interest.

“They have way too much Prime Video supply to sell to ever honestly pitch large brands to objectively buy the open Internet. They push sponsored listings most and Prime Video after that.”

Founder/CEO Jeff Green

Green doesn’t view Amazon’s DSP as an open internet competitor, as they’ve shown more interest in supporting their own ad fill rate than anything else. He views them as hopefully a partner, and still thinks Amazon will eventually open up Prime Video for platforms like their own. People thought he was crazy to think Netflix would… Yet here we are.

Furthermore, TTD outcompeted Alphabet for well over a decade while advertisers used that mega-cap’s “open internet” ad network to push impressions unfairly to YouTube and Search (per anti-trust filings). Alphabet is now greatly pulling back on that business to focus on its own properties. So while Amazon is getting a bit stronger in this area, the other big boy… that TTD has already proven it can win against at their best… is no longer at their best.

Amazon ads will continue to effectively scale… Alphabet will continue to successfully grow its YouTube and search ad businesses… and that will have zero impact on TTD’s ability to keep profitably compounding. That’s how I see things.

Putting Everything Together and Looking Towards 2026:

Trade Desk thinks it’s the best positioned company in ad tech to accelerate revenue growth in 2026. Currently, sell-side consensus expects a very modest 1-point acceleration. To me, this is Trade Desk telling everyone that growth will be at least as good as we think it’ll be. And there are many reasons why they’ve “never been more excited about the positioning.” First and foremost, the operational changes and pivots made following the ugly Q4 2024 report are working. They separated marketing and brand-level teams to get closer to their customers, restructured engineering teams and moved to a frequent cadence of software releases, rather than placing immense pressure on “watershed” updates. We saw how that pressure can backfire when there are issues like there were with Kokai. This is its way of ensuring it catches those issues much faster. They upgraded their leadership teams, finally added a Chief Operating Officer and sought to uplevel day-to-day work to lay the foundation for their next phase of durable growth. That was a key theme of this call.

Beyond this, on the brand demand side, its joint business plan (JBP) segment is rocking and the late-stage pipeline is very strong. Specifically, active JBPs are at record highs, spending growth is in excess of 20% Y/Y and it has 100 more JBPs nearing deal closure.

Adding to their 2026 acceleration conviction is Alphabet continuing to pull back from their ad network business, favorable supply/demand dynamics and a superior value proposition vs. the competition. That value proposition is how it helps customers do “more with less” and is why it takes more market share from when things like tariff uncertainty surface. While it saw some large brands pull back a bit amid tariffs, that has stabilized and all of these other factors make it confident in 2026 being another strong year for the firm.

One more note here. Comps get far easier in 2026. 2024 was a great year, with fantastic election cycle spending. That makes 2025 a tougher year and 2026 easier.

If You’re Taking Market Share & Winning, Why Are Meta & Amazon Outgrowing You?

I’m glad they got this question on the call. We need to remember that TTD caters to gigantic businesses, with global operations. They have a much smaller presence with local small businesses that aren’t as sharply reliant on import/export operations to fuel their companies. Their supply chains are inherently more local. So? When tariff uncertainty rages like it did in April and May, TTD is hit harder than these guys. The JBPs they’re signing are with companies that tariffs impact the most. TTD is focusing a bit on serving small businesses better, but the opportunity with the big boys remains so large that large enterprise pursuit must remain the priority. That’s the right long-term decision but is holding back growth a bit right now. 

Next, as already mentioned, TTD is currently undergoing a bit of an operational overhaul. Swapping out several team members and shifting day-to-day workflows to set them up for more future growth comes with some level of disruption to business.

Green included another I wanted to mention. Facebook and Amazon own their entire ecosystems. It’s easier for them to plug in AI innovation more quickly to juice returns, build automation and grow spend. TTD has to coordinate with several ecosystem partners for this same level of cohesive product delivery. That takes time, but is soon coming. I think the first two factors are much more material.

Amazon is enjoying rapid impression growth for Prime Video right now, so that company growing more quickly right now doesn’t bother me so much. Meta bothers me here. I want to see TTD outgrow the field, and expect that going forward. It looks like that’s their expectation too, considering the 2026 revenue growth acceleration guidance (Meta is expected to see growth fall from 19% Y/Y to 16% Y/Y).

Leadership:

TTD named Alex Kayyal as its new CFO. This was a sudden change, and could be contributing to some of the share price reaction seen this evening. It’s the second new CFO for TTD in two years. Language during the call made it sound like this was Green further “upgrading” the leadership team. I truly don’t think there’s anything shady here. I’ve been following this company for a very long time. Kayyal is a current TTD board member and was an early investor, so he’s very familiar with the company. That makes me less concerned about another change here. Kayyal was most recently a Lightspeed Venture Partner and an SVP and Managing Partner at Salesforce until 2023.

With some of the leadership team changes, some were worried Jeff Green was setting the company up for his retirement. That would be a massive (massive) loss for TTD, but is fortunately not happening. Green is pushing to extend the dual class share structure to secure super-voting rights and firm control of the company. He’s not going anywhere, and this is a signal of his commitment to ushering in the next era of growth. Considering how amazingly well the first era went, I want him to have a lot of skin in the game and not be tied to the short-sighted pressures of controlling institutions. I want this to be his show.

More Notes:

A very ugly share price reaction… but not an ugly quarter. This is not a repeat of Q4 when operational issues cost them financial performance. This, to me, is an irrational move from Mr. Market, and one that has me selfishly excited.

If Max readers recall, I consistently loaded the boat with more shares following their Q4 2024 earnings call, with the most aggressive buys coming on April 4th and March 13th. I love time-stamped documentation. The multiple greatly contracted, I saw the bad performance as a blip on the radar, and it was. Shares sharply recovered and so I began trimming on May 12th and sold more on July 17th. The sales represented about a third of my position overall and were a response to significant multiple expansion. 

And now, if I can get access to shares near current after-hours pricing (who knows), it is time to again lean back in. I’ve done this many times with Trade Desk and Shopify, and will keep doing so while maintaining core long-term holdings in both. These are generational compounders with massive runways, elite teams and fantastic products. They constantly race from vastly overbought to vastly oversold, with the multiples moving from affordable to very expensive… over and over again. I am not a trader. I am a long-term investor. But that does not mean I can’t take advantage as this process plays out and risk/reward fluctuates. I can and I will. 

Max readers, there’s a good chance that a portfolio update will come tomorrow, but we’ll see where it opens.

The important thing here is that this was a fine quarter. They beat both Q2 results and Q3 guidance and gave us more positive color on 2026 than I think anyone expected.  If you showed me these numbers and let me read the transcript, I would have told you the stock was probably roughly flat, following an explosive run and modest outperformance. The 30% move after-hours is candidly surprising, and again, something I hope to take advantage of. Jeff Green is a legendary Founder/CEO. I fiercely trust him to continue pushing innovation, “laying the foundation for future growth” and delivering successful results in the years to come. 

DraftKings finally didn’t have a historically bad quarter for outcome luck. It actually had a good quarter, which should quell some of the narrative of their betting lines being structurally off. For context, this is the first time its 11.5% hold rate (take rate) led its 10.9% structural (expected) rate in several quarters. Outcome favorability drove a little more than half of the revenue outperformance vs. its guidance. The rest of the beat was thanks to strong engagement and more successful bet mix-shift to parlays. Specifically, parlays as a percent of total bets rose 4.3 points Y/Y. 

Slow Y/Y Monthly Unique Payer (MUP) growth was related to Jackpocket:

“The biggest thing that happened with MUPs was last year we had Jackpocket in the numbers. And this year we also had it, but we didn't have Texas, which was a very large state for the lottery. Obviously losing that cost some MUPs affected the numbers.” 

Founder/CEO Jason Robbins

Sportsbook handle growth was just 6% Y/Y. It’s worth noting that comps were quite difficult, and that DKNG is not currently focused on volume optimization to drive revenue. As you’ll see in the profit section, it keeps aggressively slashing marketing and promotional spend, while driving revenue growth through take rate improvements rather than maximum volume. The aforementioned parlay mix-shift is the single best way it can foster that progress, and it’s going quite well.

Excluding Jackpocket, Average Revenue per MUP rose 30% Y/Y, thanks to better sportsbook outcome luck and strong engagement.

EBITDA more than doubled Y/Y, and it thinks it’s in the “early innings” of growth. Some of this was outcome driven, but a lot of it was OpEx leverage discipline too. Sales & marketing rose 8% Y/Y, and was roughly flat Y/Y excluding Jackpocket. Based on aforementioned outcome luck and lower customer incentives, promotional reinvestment as a percentage of revenue fell 6 points Y/Y. While outcome luck will shift from quarter to quarter, leadership remains confident in EBITDA margin ramping to 30% over the long haul.

There’s a lot of leverage left in this business model. Contracts for state, cloud computing and data access will come up for renewal, with DKNG having significantly more scale-based bargaining power. The company hasn’t really begun optimizing its payments stack of partnerships to optimize that cost item. The wonderfully consistent sales & marketing leverage is fully expected to continue. Finally, it is hard at work on infusing AI-powered automation into day-to-day work wherever it can. All of these factors should help offset tax headwinds in the periods ahead and enable several years of rapid profit growth.

DraftKings reiterated annual $6.3B revenue guidance, which met estimates and represents 32% growth. At the same time, it added that they’re tracking towards the high end of the $6.2B-$6.4B revenue guidance range. That’s thanks to better outcomes.

Reiterated EBITDA guidance beat estimates by 1%, and now includes a $35M headwind from launching in Missouri later this year. Missouri isn’t really impacting full-year revenue, as it’s launching in December. It still impacts EBITDA because of the front-loaded costs, ensuring a successful launch. The EBITDA guide reiteration is also despite inclusion of higher tax rates in New Jersey, Illinois and Louisiana. The confidence in still meeting this goal stems from good outcomes, and also “strong performance of core business fundamentals.”

It also reiterated 46% GPM guidance, which beat estimates by a point and $750M FCF guidance, which beat estimates by 4%. Finally, it sees its net revenue margin coming in at 7.5% vs. 7.25% previously, thanks to (you guessed it) better outcomes).

So far in July, handle growth across all major sports has accelerated to 10%+ Y/Y. They are lapping two major soccer tournaments last year and the Olympics, which will be headwinds, but on an apples-to-apples basis, things look good.

For 2026, the company thinks it will be able to offset some, but not all of $200M in incremental tax headwinds since it set targets in 2023. They did not explicitly say this would lead to missing its $1.4B target, but they also didn’t reiterate it. This could lead to EBITDA estimates for 2026 falling by a few percent in the coming days.

DraftKings reiterated all annual guidance. Revenue met estimates, EBITDA beat estimates by 1%; 46% GPM beat estimates by 150 basis points (bps; 1 basis point = 0.01%); $750M FCF beat estimates by 4%.

DKNG trades for 26x forward FCF. FCF is expected to grow by 85% this year and by 75% next year. It also trades for 29x forward EPS. EPS is expected to grow by 465% this year (inflecting) and by 60% next year.

Product Strength & Engagement:

DraftKings continues to flex its muscles about a best-in-class live bet offering – and they’re right. Availability rates crossed 90% for the first time in MLB and NBA markets, which is industry-leading. Its menu is broader, its latency is better and its successful bet rates are higher. That’s a great spot to be in, as live betting is expected to be a core, multi-year industry revenue driver in the USA. It’s already contributing positively to overall handle growth, with live betting volumes up 16% Y/Y and MLB live betting volumes up even more. I like looking at single sport growth, as it adjusts for the fact that overall volume growth is influenced by timing of major events that don’t happen at the same time every year. 

It also added a new live bet tracker, which already has 1.5 million users and updated the micro-betting (betting on the next pitch or who makes the next shot) user interface to make it easier to use. Its app personalization journey is also in its infancy. Its own live-merchandising system will mean bet pages are more tailored to customer fandom and interest, which should improve engagement.

The betting giant’s social media game is also improving. They’ve enjoyed 200% Y/Y engagement growth across platforms, while their Discord membership is up 4x Y/Y. And in terms of social features overall, bet volume is up 180% year-to-date.

Prediction Markets:

They remain in wait-and-see mode for prediction markets. It’s important for DraftKings to maintain strong relationships with regulators, local tribes and other stakeholders. It thinks the decision to await regulatory clarity here is the right one. I tend to agree.

iGaming:

They’re pleased with iGaming revenue progress, but believe it can and will be growing faster in the coming quarters. Robbins thinks DKNG is “leading the pack” with sports betting cross-sell and converting those customers to iGaming. There is room to improve on improving top-of-funnel growth for iGaming-first customers, but overall things went pretty well here this quarter. Jackpot revenue also rose 100% Y/Y.

Illinois:

As a reminder, DraftKings will be including $0.50 bet fees in Illinois (just like FanDuel) to address per-bet taxation that rises with more volume. They’re disappointed in that state for making the decision and know it will have at least a modest impact in terms of pushing more gamblers to the unregulated black market. That’s baked into guidance.

Just like the last few quarters, this was a solid showing. The only difference is that DKNG didn’t endure historically bad outcome luck, which will continue to drive quarterly volatility and be noise to tune out. The things that matter look good. Structural hold rate is rising, margin-accretive scaling keeps racing, the runway is compelling and DraftKings remains one of the two brands best positioned to capture it. The only thing that could slow this company’s trajectory is rising tax rates, and that will probably remain a theme.

Fortunately, in my mind, momentum and execution are strong enough to make that not really matter at this valuation. Even if we assume EBITDA will now come in around $1.3B next year instead of $1.4B, that represents 53% Y/Y growth (faster growth for EPS and FCF) for a market leader trading at 21x forward EBITDA, 22x forward free cash and 25x forward EPS. I’m happy with what I own and pleased with this company’s fundamental performance.