DraftKings (NASDAQ:DKNG) shares advanced on Friday, climbing 5.6% to $23.42 in afternoon trading, as investors focused on surging betting activity rather than a weaker-than-expected second-quarter earnings report. The stock's positive reaction underscores a market view that the company's revenue shortfall stems from monetization challenges, not a lack of consumer demand.
During the quarter, DraftKings reported an 11% year-over-year increase in sportsbook handle, a key volume metric. In comparison, FanDuel parent Flutter Entertainment (NYSE:FLUT) posted only 2% growth in the same period. This nine-percentage-point gap indicates that DraftKings is gaining significant market share, a trend that analysts believe bodes well for long-term profitability.
However, the company's sports net revenue margin contracted to 6.8% from 8.7% a year earlier. If last year's margin had been applied to this year's betting volume, sports revenue would have reached approximately $1.14 billion. Actual sports revenue came in at $892 million, a roughly $251 million shortfall. This difference highlights the impact of customer-friendly sports outcomes and increased promotional spending.
Overall, DraftKings reported revenue of $1.443 billion, missing the consensus estimate of $1.51 billion by 4.4%. The company posted a GAAP loss of $0.14 per share, compared to a consensus estimate of +$0.02. Adjusted EBITDA fell 61.9% year-over-year to $114.6 million, while adjusted diluted EPS dropped 76.3% to $0.09. Sales and marketing expenses surged by $89 million to $323 million, contributing to the profit decline.
Despite the earnings miss, management maintained its 2026 guidance, projecting revenue between $6.5 billion and $6.9 billion and adjusted EBITDA of $700 million to $900 million. CEO Jason Robins noted that the company's Predictions platform is "already growing faster than we anticipated," with annualized trading volume rising from $2.3 billion in April to $11 billion in July. However, this metric is based on monthly volume times 12 and does not represent recognized revenue.
The operational data paints a mixed picture. Sports consumer volume increased 14.5% to $13.14 billion, while iGaming revenue grew 7.5% to $461.9 million. Customer acquisition surged 73%, but customer-acquisition costs declined 8%, indicating improved efficiency. DraftKings brought in nearly 30% more customers than targeted, with core costs coming in 25% below forecasts.
Analyst sentiment remains largely positive. Of 27 analysts surveyed, 23 rate the stock a Buy, three recommend Hold, and one suggests Sell. The consensus 12-month price target is $35.02. Morgan Stanley's Stephen Grambling maintained a $36 target, Benchmark's Mike Hickey reiterated a $30 target, and Stifel's Jeffrey Stantial kept a $38 target. Bank of America's Shaun Kelley, who holds a Hold rating with a $27 target, acknowledged that DraftKings is "executing well and gaining share in core sports betting," but cautioned that acquisition spending could pressure EBITDA in the second half.
Flutter's results further highlight DraftKings' relative strength. FanDuel's U.S. sportsbook revenue declined 15%, and Flutter cut its full-year profit outlook. In contrast, DraftKings' higher handle growth offset its earnings shortfall, leading to a 5.6% gain versus Flutter's 1.4% rise.
While the quarter was lackluster on the bottom line, the market's response suggests confidence in DraftKings' ability to convert its growing user base into revenue. Risks remain, including elevated promotional costs and the uncertain regulatory landscape for prediction markets. But for now, investors are betting that the company's demand story outweighs its near-term monetization challenges.
