Shares of DraftKings Inc. experienced a sharp sell-off on Friday, plummeting 13.5% to close at $21.76. The decline followed the company's release of its financial outlook for 2026, which fell short of analyst expectations, rattling investor confidence.
Financial Performance and Guidance
The sports betting operator reported robust fourth-quarter results for 2025, with revenue surging 43% year-over-year to $1.989 billion. Adjusted EBITDA for the quarter reached $343.2 million. For the full year 2025, DraftKings generated total revenue of $6.055 billion and achieved a net income of $3.7 million, marking a significant turnaround from a loss in the prior year.
However, the company's forward-looking projections dampened the positive earnings report. DraftKings issued 2026 revenue guidance in the range of $6.5 billion to $6.9 billion, alongside an adjusted EBITDA forecast of $700 million to $900 million. Both ranges were below the consensus estimates from Wall Street, prompting a reassessment of the stock's near-term growth trajectory.
User Metrics and Strategic Pivot
A key metric watched by analysts, monthly unique payers, remained stagnant at 4.8 million, unchanged from the previous period. This flat user growth contrasted with an increase in average revenue per payer, which rose to $139. The company attributed part of its 2026 outlook to planned investments in a new business vertical: prediction markets, branded as DraftKings Predictions.
Management, including CEO Jason Robins, has characterized prediction markets as a "massive, incremental opportunity." The company's entry into this space was facilitated by its October acquisition of Railbird, a federally licensed exchange designated by the Commodity Futures Trading Commission (CFTC). DraftKings Predictions is registered as an introducing broker with the CFTC and is a member of the National Futures Association.
Market Context and Regulatory Landscape
The move into prediction markets, where contracts trade on event outcomes similar to financial instruments, comes as this nascent sector gains attention. For instance, platform Kalshi reported over $1 billion in trading volume on Super Bowl Sunday alone. However, this expansion introduces new regulatory complexities. Unlike traditional sports betting, which is regulated at the state level, event contracts fall under the purview of the CFTC.
The regulatory environment remains fluid and uncertain. A group of 23 Senate Democrats recently sent a letter to the CFTC urging the agency to avoid litigation related to sports prediction contracts, highlighting the unsettled legal framework. This regulatory overhang is a primary concern for investors, who are wary of the potential costs and operational hurdles.
Analyst Reaction and Capital Allocation
Wall Street analysts quickly adjusted their models in response to the guidance. Guggenheim, while maintaining a buy rating on the stock, reduced its price target to $37 from $42. Analyst Curry Baker described the 2026 outlook as "a conservative starting point" and noted expectations for continued share repurchases.
DraftKings has been active in returning capital to shareholders. In 2025, the company repurchased 16.0 million shares at a cost of $571.5 million, under a buyback program now authorized for up to $2.0 billion. The broader gaming sector also felt pressure on Friday, with shares of Flutter Entertainment declining 11.5%, Caesars Entertainment down 4.5%, and Penn Entertainment falling 5.2%.
Looking Ahead
Investors are now looking to two key dates. U.S. equity markets will reopen on Tuesday following the Washington's Birthday holiday on Monday. More significantly, DraftKings has scheduled a virtual investor day for March 2. Management has committed to providing more detailed information on its Predictions strategy and capital return plans at that event.
The company's performance in this new arena, alongside any developments from the CFTC or related court decisions, are poised to be the next major catalysts for the stock. The market's reaction underscores the demand for clearer evidence that DraftKings can successfully monetize its prediction market initiative without eroding profitability through expensive customer acquisition campaigns.
