Gary spent 15 years as production editor for highly regarded UK investment magazine Money Observer, covering subjects ranging from social trading to fixed-income exchange-traded funds. Gary introduced coverage of bitcoin to Money Observer in 2013....
Read Full BioDraftKings’ Q2 earnings next week will likely leave analysts with a lot to chew over before they quiz CEO Jason Robins on the investors’ call two days later. The earnings are set to be released next Wednesday, July 30, while the call will take place at 8:30 a.m. ET that Friday.
DraftKings stock has risen 23.2% year-to-date, including 7.8% in the past month. It reached $44.66 as of the opening bell on July 23, largely due to its booming online sports betting business. The Boston-based firm has its origins in daily fantasy sports and remains a major player in that space.
Its major competitor is FanDuel. The two giants share 80% of the sports betting market between themselves. However, both are increasingly under pressure from smaller, well-resourced rivals such as BetMGM and bet365. Compounding that is the rise of crypto-based iGaming outfits and prediction markets.
Although DraftKings’ first-quarter earnings came in below estimates, the strength of the stock’s growth story means investors have seemed happy enough to look past disappointing numbers. The Q1 report included a reduction of DraftKings’ full-year sales and EBITDA forecasts, but the resulting drop in share prices proved only temporary.
Although sales were up 20% to $1.41 billion at that time, analysts had forecast $1.48 billion. Adjusted earnings per share had been forecast for $0.20 but came in at just $0.12.
The company cut its sales forecast for 2025 from $6.6 billion to $6.4 billion and EBITDA for the same period from $1 billion to $900 million.
The Wall Street analyst consensus estimate for Q2’s adjusted EBITDA is $225 million, which is again above DraftKings’ more conservative estimate of $200 million. Morgan Stanley is particularly bullish, projecting $260 million. That company also expects DraftKings’ gross gaming revenue (GGR) to jump 13% and its online sports betting segment to show 11.5% year-on-year improvement.
Good Results for Bettors Cut Into DraftKings’ Profitability
Shareholders may also have been inclined to give DraftKings a pass for a disappointing quarter because of the natural volatility of the sports betting business.
“If not for customer-friendly sport outcomes in March, we would be raising our fiscal year 2025 revenue and adjusted EBITDA guidance,” Robins explained in a May statement.
Casual bettors tend to prefer betting on favorites, so “customer-friendly outcomes” typically means a period without many upsets.
The March Madness college basketball tournament, in particular, applied downward pressure to net gaming revenue. For only the second time in history, the Final Four teams were the top four seeds coming into the tournament, as the Sweet 16 and Elite Eight rounds passed without any surprising victories.
Barclays estimates that DraftKings’ share of the $14 billion US sports betting market declined from 39% in Q4 2023 to 31% in 2025.
Still, DraftKings’ revenue has been growing at a compound annual growth rate is 71.3% since 2019. Sports betting was legalised in the US in 2018.
Active players increased 28% in Q1 2025, according to the company, coming in at 4.3 million. Nevertheless, DraftKings admits that it has experienced a run of weak quarters recently. Investors will be hoping to hear some good news next week.
“Sometimes you have one, two, or three quarters that are weak in a row. We have to wait and see if things normalise… usually they will,” Robins told analysts on the Q1 conference call.
DraftKings turns the profitability corner as EPS turns positive
Although the growth rate is slowing, the standout development for shareholders is that over the past five years, EPS has flipped from negative to positive, starting in Q1 2024 on a non-GAAP basis.
And there’s more good news on DraftKings EPS. The consensus broker forecast is for EPS growth of 445% for the next 12 months, although a competing survey of brokers calculates a 306% growth rate. Either way, DraftKings has turned the profitability corner.
Operating margin compression is still an issue, although the situation is improving. It was -3.3% in Q1 2025, up from -11.8% in Q1 2024.
Another warning sign might be found in the turnover. Despite having grown by 32.1%, it is still running below the three-year average of 54.4%.
Total borrowing as a percentage of market capitalization is 6.2% – better than rival Flutter’s 13.9% or Entain’s burdensome 65%, and an improvement on DraftKings’ three-year average of 15.2%.
“Recent product enhancements are driving outperformance in our core value drivers, and our customer metrics continue to be strong through an evolving macroeconomic environment.”
On June 1, Robins exercised his right to acquire 93,976 shares in the company for $35.88 each ($3,371,858), which could be interpreted as a significant bullish development. DraftKings stock has already risen 24% since then.
Can DraftKings turn downside risks into upside opportunities?
Prediction markets like Kalshi and Polymarket have been identified as new competitors to the established gaming firms.
In a move interpreted as a response to the threat, DraftKings applied for a license from the National Futures Association to sell derivatives in July last year, but withdrew it in March.
That could prove to be a costly mistake. Although Kalshi is a regulated entity, Polymarket has been banned from offering its services in the US.
However, the pro-crypto Trump administration leaned on the US Justice Department and Commodity Futures Trading Commission to drop probes into Polymarket. Last week, it was cleared of wrongdoing. Already, it has announced plans to re-enter the US market by way of a strategic acquisition.
The passing of the GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins) by Congress will also concentrate minds at DraftKings and other non-crypto gaming companies.
Soon to land on Trump’s desk, the new law will bring stablecoins in from the cold and shake up payments in the US. For DraftKings, that could mean opening up customer deposits to popular stablecoins like Tether (USDT) and Circle-Coinbase’s USDC.
It also allows non-financial companies to create their own stablecoins, and Walmart and Amazon have already made clear their intention to do so.
Crypto-based online betting companies will be beneficiaries, piling pressure on DraftKings. However, DraftKings could turn stablecoins into an opportunity if it can move quickly and embrace stablecoin deposits to widen its target audience and help it reduce payment-related costs.
Legal headaches are a perennial problem
Unfortunately, regulatory difficulties and lawsuits are par for the course for gaming companies. Some have been more affected in recent quarters than others. DraftKings has several ongoing legal entanglements, one of which it recently settled.
A case brought by the Connecticut Department of Consumer Protection alleged that DraftKings had failed to provide clear information to its customers regarding its online casino deposit promotions. The company has agreed to return $3 million to 7,000 Connecticut customers to settle that case, without admitting liability.
DraftKings is also dealing with litigation related to deposit and bonus promotions in Maryland and Massachusetts. The Maryland case is a suit brought by the City of Baltimore against both DraftKings and FanDuel. The latter will soon be wholly owned by Flutter, which has agreed to buy the remaining equity from Boyd Gaming.
Legal disputes and the competitive challenges it faces from new entrants in a rapidly evolving sports betting market could limit the extent of further upside for DraftKings. Even so, the company is trading below the consensus price target of sell-side analysts.
Share Price Will Depend on a Combination of Factors
The consensus price target is $52.90, which is nearly 20% above its current value.
Near-term price movements will depend on the Q2 results news on 30 July. That, in turn, could depend on whether the latest quarter’s sports results have been more favorable to the house than the previous.
April was a busy month in US sports betting, with the tail end of the NCAA Championship, The Masters, the NBA andNHL Playoffs, and NFL Draft all attracting bettors.
It is likely that net gaming revenue will show an improvement from Q1 due to the dismal hold sportsbooks experienced around March Madness.
Beyond that, shareholders are likely to seek indications on the earnings call that the company will look to enter the predictions market to compensate for the slowing growth rate in sports betting. At the same time, DraftKings will continue to bear down on the overall costs of doing business. Finally, legal disputes and state tax increases will continue to be wildcards.
