DraftKings Inc. (NASDAQ: DKNG) experienced a notable rebound on Friday, closing at $24.03, an increase of 8.39%, despite reporting second-quarter results that fell short of expectations. The stock's surge came after a nearly 3% decline in after-hours trading on Thursday, as investors seemed to focus on the company's robust user growth rather than its weaker monetization metrics.
The Boston-based sports betting and iGaming operator reported total revenue of $1.443 billion for Q2 2026, a 4.6% decline year-over-year and below the market consensus of $1.510 billion. Adjusted diluted earnings per share came in at $0.09, down 76.3% from $0.38 in the same period last year and missing analyst estimates of $0.17. Despite these misses, the company saw a 14.5% increase in sports consumer volume, reaching $13.140 billion, while sports revenue declined 10.6% to $891.9 million.
The primary driver of the revenue shortfall was a decline in sports net revenue margin, which fell to 6.8% from 8.7% a year ago, a 190-basis-point drop. This was attributed to more favorable outcomes for customers and increased promotional activity. However, analysts were quick to point out that a modest 50-basis-point improvement in margin could generate approximately $66 million in additional quarterly sports revenue, nearly offsetting the $67 million revenue shortfall. This sensitivity analysis, based on current volume levels and assuming no changes in expenses, highlights the significant operational leverage inherent in DraftKings' business model.
Monthly unique payers grew to 3.6 million, up 9.1% year-over-year and 16% above consensus, while revenue per monthly payer declined to $132, down 12.6% and 17% below expectations. The company's aggressive customer acquisition strategy, including increased spending on the FIFA World Cup, NBA playoffs, and its Super App and Predictions product, drove sales and marketing expenses up 38.3% to $322.5 million.
Despite the mixed results, DraftKings maintained its full-year 2026 revenue guidance of $6.5 billion to $6.9 billion and adjusted EBITDA guidance of $700 million to $900 million. Management reiterated that core operations are on track to deliver approximately $1 billion in adjusted EBITDA, with an additional $200 million to $300 million expected to be invested in Predictions. CEO Jason Robins noted that Predictions is growing faster than anticipated, having attracted over 600,000 users, with parlay wagers accounting for nearly 20% of total activity.
Wall Street analysts largely remained positive on the stock following the earnings report. Stifel's Jeffrey Stantial maintained a Buy rating with a $38 price target, implying 58.1% upside. Morgan Stanley's Stephen Grambling also maintained a Buy with a $36 target, while Citizens JMP's Jordan Bender kept a Market Outperform rating. Citigroup's James Hardiman and Truist's Barry Jonas reiterated Buy ratings, though Bank of America's Shaun Kelley expressed caution, noting that increased customer-acquisition costs could pressure EBITDA in the second half.
DraftKings' Friday performance outpaced its peers, with Flutter Entertainment (NYSE: FLUT) rising 1.89%, PENN Entertainment (NASDAQ: PENN) gaining 0.20%, and Caesars Entertainment (NASDAQ: CZR) adding 0.30%. Rush Street Interactive (NYSE: RSI) fell 0.84%. Despite the weekly gain of 2.34%, DraftKings shares remain down 30.27% year-to-date in 2026, reflecting the challenges ahead.
Investors will be watching upcoming economic data, including U.S. consumer price figures on August 12, producer prices on August 13, and retail sales on August 14, which could influence market sentiment. DraftKings also plans to launch a significant application update in August, which may impact user engagement. However, risks remain, including unfavorable sports outcomes, promotional spending, and ongoing legal disputes in California, Massachusetts, and South Carolina. As one analyst noted, volume is no longer the primary concern; the key question is whether DraftKings can recover at least 50 basis points of margin without reigniting promotional spending.
