Shares of online gambling company DraftKings (DKNG 5.87%) fell as much as 6.7% in trading on Thursday as investors started to question the company's growth potential. Shares closed the day down 4.6%.
The first item of note is that MGM Resorts (MGM 0.05%) said during its earnings report on Wednesday that it held the No. 1 market-share position for sports wagering and online gambling in the U.S. in August, a position formerly held by DraftKings. It also said that MGM's market share in online gambling was more than double that of the second-place competitor.
Morgan Stanley analyst Thomas Allen also released a note to clients that highlighted potential positive and negative catalysts for the company. One negative could be losing market share, which we may be seeing today.
On the plus side, DraftKings announced a broad deal with the NBA, which will allow it to offer daily fantasy sports, online gambling, and other products in the DraftKings app.
The market is trying to determine what the future of online betting is given the high revenue potential but large losses being reported today. If DraftKings is losing market share, that's not a good sign for the business, which is why the MGM news is notable.
I see this mainly as normal volatility for a growth stock like DraftKings. News cycles will be positive and negative, and right now we're seeing the downside. But that trend could reverse if DraftKings reports a strong quarter tomorrow morning before the market opens.