DraftKings (DKNG +0.12%) shares nosedived last week after the company reported strong growth but issued conservative guidance. The online sports betting stock is now trading down about 35% year to date as of this writing.
Let's take a closer look at its results and prospects to see if the drop is a buying opportunity.
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Prediction markets: Catalyst or disruptive competition?
DraftKings' stock has been pressured over the past year as a growing number of prediction market platforms have popped up and introduced derivative contracts that look an awful lot like sports betting. Instead of waiting for the legality of prediction markets to be sorted out in the courts, DraftKings has joined in the fun with its own prediction market platform, while noting that the regulatory landscape looks more favorable with the increased engagement from the Commodity Futures Trading Commission (CFTC).
On its fourth-quarter earnings call, DraftKings CEO Jason Robins shifted his stance, saying that the prediction market was its biggest growth opportunity since the Supreme Court paved the way for states to legalize online sports betting. Meanwhile, he said, thus far, the company has not seen any effect on its sportsbook from these prediction markets. Its newest sportsbook state, Missouri, had the highest adoption rate in its history through two months, with strong activity levels from bettors.
For Q4, the company saw its revenue surge 43% to $1.99 billion. Its sportsbook revenue soared 64% to $1.4 billion, with handle (the amount wagered) growth accelerating to 13%. Meanwhile, its hold percentage (win margin) was above 12%, with a robust 16% for the NFL season. Its net revenue margin jumped 250 basis points to 8%, helped by an increase in parlay betting. iGaming revenue, meanwhile, climbed 17% to $500 million.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) skyrocketed in the quarter, up fourfold compared to a year ago to $343 million. Adjusted earnings per share (EPS) climbed from $0.14 to $0.36.
Looking ahead, the company projected 2026 revenue to be between $6.5 billion and $6.9 billion, which was below the $7.3 analyst consensus. It forecast adjusted EBITDA to be between $700 million and $900 million, which was short of the $998 million consensus. That still represents 14% revenue growth at the high end of guidance and 45% EBITDA growth.
NASDAQ: DKNG
Key Data Points
Should investors buy the dip?
The conservative guidance was a big blow to DraftKings, given the fear investors have that its business will be disrupted by prediction markets. However, its growth has continued to be strong, and the two markets do appear to attract different types of bettors.
The stock currently trades at a forward price-to-earnings (P/E) ratio of just 16 times the 2026 analyst consensus, making it very cheap given its current growth. If the prediction market turns into being more of a growth driver than a risk, the stock has a lot of upside. I think investors can take a small position in the stock to watch how this plays out.
