Shares of sports betting company DraftKings (DKNG 1.03%) are down 24% thus far in 2025. This once-hot growth stock has faced a lot of adversity in recent months as investors aren't as convinced about its long-term growth prospects these days.
Although the business has grown significantly in the past few years, there are challenges ahead, namely having to do with competition and the growing popularity of prediction markets.
Here's what you need to know about DraftKings and whether it's a good buy on weakness, or if you're better off steering clear of the stock for now.
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DraftKings underwhelms with recent results
On Nov. 6, DraftKings reported its third-quarter earnings numbers, which did not impress investors. Quarterly revenue of $1.14 billion fell short of Wall Street estimates of $1.2 billion. And its loss per share of $0.52 was also much worse than the $0.43 per-share loss that analysts were projecting. The trifecta of disappointment was complete with its guidance of $5.9 billion to $6.1 billion in sales for the year also coming in lower than Wall Street projections of $6.19 billion.
NASDAQ: DKNG
Key Data Points
Overall, it was a disappointing quarter for the sports betting company, and it comes at a time when investors are already concerned about rising competition, particularly from the prediction markets, which arguably make it easier for people to bet on sports and other events. To combat this, DraftKings is planning to launch its own prediction market platform in the near future. But even if that happens, it could still make for an intense market to compete in as more businesses get involved. And that could make turning a profit much more challenging.
For the period ended Sept. 30, the company incurred an operating loss of $271.9 million, which was only slightly better than the $298.6 million loss it posted in the prior-year quarter. If the business is unprofitable right now, things may not necessarily get better as more companies like Kalshi and Robinhood grow their betting and prediction platforms.
The CEO may be bullish, but investors clearly aren't
DraftKings' CEO Jason Robins says, "this is the most bullish I have ever felt about our future," as the company looks to expand into prediction markets, calling it "a significant incremental opportunity." But this excitement isn't translating into success for the growth stock, as shares of DraftKings have declined 15% in the past month, with sentiment seemingly getting worse rather than better, despite plans to open up a big opportunity in the prediction markets.
One cause for concern may be in its user growth. DraftKings reported that its monthly unique payors for the past quarter grew by just 2% year over year, to 3.6 million customers. A year ago, that growth rate was much more explosive at 55%.
DraftKings' days of growing fast could be long gone. Sales were up by just 4% this past quarter, and although the prediction markets may potentially enable it to grow faster, it won't be easy, and a rise in competition could put pressure on a bottom line that already doesn't look strong.
Why I'd hold off on buying DraftKings stock
DraftKings is a top entertainment and gaming company, but it's also in the midst of some growing competition from formidable rivals. Meanwhile, even though it has already achieved some impressive growth, it's still nowhere near its break-even point.
Without a path to profitability and without a distinct competitive advantage that suggests it can fend off competition, I wouldn't buy DraftKings stock today. Instead, I'd take a wait-and-see approach with it, as there's still some considerable risk and uncertainty ahead.
