DraftKings Inc. (NASDAQ: DKNG) saw its shares advance 5.3% on Wednesday, closing at $25.31, as investors weighed the impact of aggressive Major League Baseball promotions on the company's margin recovery efforts. The stock's rise outpaced broader market gains, with the Nasdaq Composite edging up just 0.2%.
The surge came amid heightened online interest in DraftKings' current welcome offer, which provides $150 in bonus bets after a qualifying $5 wager. The promotion, valid until August 23, distributes bonus bets in $50 increments over two weeks, each with a seven-day validity period. While the headline figure suggests a 30x return, the bonus bets carry no cash value and are not included in potential winnings, making the actual cost to the company lower than it appears.
Despite the promotional buzz, DraftKings' second-quarter financials highlight the tension between customer acquisition and profitability. Sports betting handle rose 14.5% year-over-year to $13.14 billion, but sports revenue fell 10.6% to $891.9 million. The net revenue margin contracted to 6.8% from 8.7% in the prior-year period, reflecting customer-friendly outcomes and increased promotional spending.
Monthly unique payers grew 9% to approximately 3.6 million, yet average revenue per payer dropped 13% to $132. Sales and marketing expenses surged 38.3% to $322.5 million, underscoring the cost of driving engagement. CEO Jason Robins highlighted growth in handle, users, and engagement, while CFO Alan Ellingson reaffirmed the company's path to roughly $1 billion in adjusted EBITDA before Predictions-related expenses.
DraftKings maintained its full-year guidance of $6.5 billion to $6.9 billion in revenue and $700 million to $900 million in adjusted EBITDA. However, the market's reaction suggests skepticism about the sustainability of promotional-driven growth, especially as the MLB offer concludes just as football season spending ramps up.
Wednesday's rally was not backed by strong volume, with only 6.8 million shares traded—about 48% below the 50-day average of 13 million. The stock remains 48% below its 52-week high of $48.78. Over the past week, shares have slipped 0.8%, with Wednesday's gain merely offsetting prior losses.
Analyst sentiment remains cautiously optimistic. Recent price targets range from $30 to $38, implying upside of 19% to 50% from Wednesday's close. J.P. Morgan, Guggenheim, and Barclays all trimmed their targets after the quarterly results but maintained positive ratings, citing long-term growth potential in the online sports betting market.
Investors now face a critical test: whether new users remain engaged once promotional credits expire. The company must demonstrate that sports revenue can grow in line with handle, rather than relying on costly incentives. Competitive pressure from larger rivals, regulatory hurdles, and higher gaming taxes could further constrain margins. Until DraftKings shows sustainable revenue growth, its expanding customer base remains an expensive proposition.
