DraftKings (DKNG +0.51%) is another former highflier that has been pushed into the presumed loser’s basket by investors. Instead of artificial intelligence (AI) being the culprit, though, the online sports betting stock is a victim of the rise of prediction markets. The stock has now lost more than a third of its value over the past year.
Instead of just sitting still, however, the company is trying to leverage the predictions market to its benefit. It’s doing this in two main ways. The first is that it is introducing its own predictions market. It will invest between $200 million and $300 million in product technology and marketing.
Today’s Change
(0.51%) $0.13
Current Price
$24.64
Key Data Points
Market Cap
$12B
Day’s Range
$24.48 – $25.71
52wk Range
$20.46 – $48.78
Volume
526K
Avg Vol
15M
Gross Margin
41.79%
It will look to leverage its existing sportsbook and create a super-app that combines its sportsbook, online gaming, lottery, and prediction market into one offering. The app will only show what products are legal in a user’s current state. It is looking to make a big push ahead of the upcoming soccer World Cup.
The predictions market push is already seeing some early results. In April, after the quarter closed, annualized consumer volumes jumped 38% month over month to over $1 billion, and annualized total volumes climbed 43% month over month to more than $2.3 billion.
At the same time, the company is looking to convince additional states to legalize sports betting and iGaming in the face of prediction markets, which don’t pay taxes to the states. It also didn’t see any states increase taxes on legal online sports betting operators this year due to prediction markets.
Despite the headwind from the predictions market, DraftKings is still seeing solid growth. For the first quarter, the company saw its revenue climb 17% to $1.65 billion. Its sportsbook revenue jumped 24% to $1.1 billion. Sportsbook handle (the amount wagered) increased by 1.5%, while parlay handle mix jumped 300 basis points year over year. Parlays have a higher hold percentage (win margin), so they help drive growth. iGaming revenue, meanwhile, rose 9% to $461.3 million.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) surged in the quarter, up 64% to $167.9 million. Adjusted earnings per share (EPS) climbed from $0.12 to $0.20.
The company maintained its guidance for 2026 revenue to be between $6.5 billion and $6.9 billion and adjusted EBITDA to be between $700 million and $900 million. That equates to 14% revenue growth at the high end of guidance and 45% EBITDA growth.
Image source: The Motley Fool.
Is the stock a buy?
While DraftKings’ growth has been pressured by the predictions market, it is embracing the concept and looking to become a major player. Given that it only currently reaches just over half the U.S. population with its sportsbook, this could be a nice opportunity. Meanwhile, there is bipartisan legislation to make sports-related prediction “bets” illegal, which, if passed, would be a huge boost to the stock.
The stock currently trades at a forward price-to-earnings (P/E) ratio of just 14 times the 2027 analyst consensus, so it’s relatively inexpensive. I think it’s worth placing a small wager on the stock down at these levels, as investors can win one of two ways. Its super-app and predictions business can help propel growth, or it could get a big regulatory win at some point.
