DraftKings Stock Falls on Disappointing Results. Prediction Markets Are Coming Soon.

Shares of DraftKings have fallen 38% since the company last reported earnings in August. (Michael Reaves/Getty Images)

Shares of DraftKings fell in late-trading Thursday after the company reported weaker-than-expected third-quarter earnings results.

The company said sales for the quarter were $1.14 billion, below Wall Street’s estimate for $1.2 billion. Its earnings per share loss of $0.52 was wider than Wall Street’s expected loss of $0.43.

The company also said it expected full-year 2025 sales ranging from $5.9 billion to $6.1 billion. Wall Street has forecast $6.19 billion. The sportsbook also slashed its adjusted earnings outlook for the full fiscal year.

The stock was down as much as 11% in after-hours trading following the report, before recovering some of those losses.

Three months ago, DraftKings said it expected fiscal 2025 adjusted Ebitda, or earnings before interest, taxes, depreciation, and amortization, between $800 million and $900 million. Now DraftKings is projecting a range of $450 million to $550 million. The company notes that that guidance takes into account the launch of DraftKings Predictions in the coming months.

In a letter to shareholders, CEO Jason Robins said, “This is the most bullish I have ever felt about our future,” and clarified the company’s plans for its prediction market platform, DraftKings Predictions.

In late October, DraftKings announced an acquisition of Railbird Technologies, which operates a federally licensed exchange that can sell event contracts, prediction markets’ signature offering. DraftKings will use the exchange as the basis of DraftKings Predictions. A press release announcing that acquisition did not say if the company would offer event contracts based on sporting events. Investors have speculated whether or not DraftKings would go against the wishes of state gambling regulators across the country that have sued prediction markets for offering those contracts.

Robins today put that speculation to rest: “In the coming months, we expect DraftKings Predictions to enter many states with sport event contracts, unlocking a new customer base and revenue stream.”

By offering federally regulated event contracts, prediction markets like Kalshi have circumvented state regulations and taxes to effectively offer sports betting nationwide. Now DraftKings will do the same and be in direct competition with Kalshi, whose meteoric rise has spooked investors over the past quarter.

“We will pursue this opportunity, we will compete, and we will win,” Robins said in the shareholder letter, adding that “we plan to focus on the states where we do not offer Sportsbook, which also is where we believe the vast majority of the financial opportunity exists.” That could include the country’s most populous state, California, where voters shot down a bill to legalize sports betting in the state in 2022.

DraftKings also announced Thursday that it will become the official sportsbook and odds provider for ESPN. Walt Disney, ESPN’s parent company, will scrap its previous betting partnership with Penn Entertainment. The company’s sportsbook venture, ESPN Bet, will become a “sports betting content brand,” according to a press release.

DraftKings will be folded into ESPN’s app, continuing the network’s approach that “has focused on offering an integrated experience with our products,” ESPN Chairman Jimmy Pitaro said in the release.

An exclusive partnership with one of the biggest sports brands in the country is a positive note to end a dismal quarter for DraftKings’ stock. Shares closed at a 52-week low of $27.92 on Wednesday, a 38% drop from when the company last reported earnings in August. Shares were up 0.2% Thursday afternoon, with the S&P 500 down 0.8%.

While the ESPN deal is likely to bring more visibility to the already-ubiquitous betting brand, it may do little to assuage the Street’s worries around the broader sportsbook business.

Bank of America analysts on Tuesday downgraded DraftKings stock to neutral from buy and knocked their price target from $48 to $35, citing the “borderline relentless flood of bad news” for the firm and the fact that DraftKings sports bettors are consistently winning more of their wagers than the company expects them to.

Aside from those perennial concerns, prediction markets are likely to be the hottest topic of discussion during the earnings call on Friday morning.

Write to Nick Devor at nicholas.devor@barrons.com