DraftKings Inc. announced its latest quarterly financial results, revealing a notable profit shortfall that sent its stock tumbling. The company's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 64% to $168 million, which was ahead of analysts' projections of $153 million. Revenue also increased by 17% to $1.65 billion, slightly exceeding estimates of $1.63 billion. Despite these top-line beats, the overall profit figure, not specified in detail for the quarter, was weaker than anticipated, largely attributed to increased operational expenditures.
The profit miss is largely attributed to DraftKings' strategic decision to heavily invest in its new predictions market push. CEO Jason Robins stated that the company expects to be a leader in this nascent category, targeting "hundreds of millions in annual revenue" from DraftKings Predictions in the years ahead. This aggressive expansion comes amid a competitive landscape where prediction markets are gaining traction, exemplified by rivals like Kalshi and Polymarket.
In addition to operational investments, DraftKings has been facing a wave of lawsuits related to its prediction market offerings. Three lawsuits have been filed, including two proposed class actions, alleging that DraftKings Predictions operates as an illegal sportsbook. Plaintiffs claim to have lost significant amounts of money, with one reporting losses over $700, another over $1,000, and a third over $100. These lawsuits argue that DraftKings misleads consumers into believing the activity is lawful and safe, citing that sports event contracts are being offered in states where online sports betting is illegal or limited, such as California, Texas, Alabama, Florida, Georgia, South Carolina, and Utah. DraftKings maintains that its prediction-market app operates in accordance with applicable law and the federal regulatory framework.
The company also provided a forecast for 2026, projecting revenue of $6.5 billion to $6.9 billion and adjusted earnings of $700 million to $900 million. These figures fell short of analysts' estimates, which had anticipated revenue of $7.32 billion and earnings of $998 million. This outlook contributed to a significant intraday drop in DraftKings' stock, marking its largest decline in nearly three-and-a-half years. The guidance also did not factor in potential state tax increases, which could further impact EBITDA growth according to analysts.
For the quarter ending in December, DraftKings reported revenue of approximately $2 billion, aligning with consensus estimates of $1.99 billion. Earnings per share for that period were $0.25, surpassing estimates of $0.16. Average monthly users for that quarter were 4.8 million, flat from Q4 2024 but up 37% from Q4 2023, with average revenue per user increasing to $139. However, sales and marketing costs also rose by 20% from Q4 2024 to $442.6 million, indicating a continued high expenditure in customer acquisition and brand visibility.
