DraftKings Stock Drops 15% on Earnings Miss, Doubles Down on Prediction Markets
DraftKings executives leaned closely into prediction markets throughout the firm’s fourth-quarter earnings name Friday morning, framing the rising product as a serious long-term development driver, whilst traders reacted cautiously to the near-term monetary outlook.
The name got here a day after the corporate launched its shareholder letter highlighting what it described as a “large, incremental alternative” in DraftKings Predictions and plans to speculate closely in buyer acquisition.
The bullish messaging landed alongside softer steerage that fell in need of Wall Street expectations. DraftKings shares fell about 15% in premarket buying and selling after its Q4 report got here out Thursday, as traders reacted to the conservative outlook and the anticipated prices of increasing prediction markets regardless of continued income development, in line with MarketWatch reporting on the inventory response.
During the incomes name’s analyst Q&A, CEO Jason Robins emphasised rising regulatory readability, notably across the Commodity Futures Trading Commission’s position in overseeing occasion contracts, and pointed to early utilization patterns in states with out authorized sportsbooks, particularly in California and Texas. He additionally highlighted the upcoming Railbird change rollout, for which DraftKings plans to function its personal market maker, positioning liquidity and knowledge infrastructure as aggressive benefits within the creating sector.
Robins stated DraftKings views prediction markets as a roughly $10 billion long-term market alternative, citing a mixture of analyst estimates, early utilization knowledge and inside projections. He famous that some exterior forecasts run as high as $16 billion.
Railbird rollout highlights shift to in-house prediction markets
One of the extra substantive operational particulars within the Q&A centered on Railbird, the change infrastructure DraftKings acquired as a part of its push to construct a extra vertically built-in prediction markets enterprise. Currently, the contracts provided by way of DraftKings Predictions are sourced from CME Group and Crypto.com, however Railbird is meant to provide the corporate better management over market creation, pricing and buying and selling economics.
Robins stated the Railbird platform is anticipated to start rolling out subsequent quarter, with DraftKings planning to function its personal market maker alongside outdoors buying and selling companies. Market making is central to change liquidity, offering steady purchase and promote quotes, tightening spreads and serving to preserve contracts tradable even when buyer exercise is restricted. Running its personal market maker would permit DraftKings to seize extra of the income from buying and selling exercise whereas supporting liquidity because the market develops.
“On liquidity — just about each market maker out there may be lining as much as get arrange for Railbird,” Robins stated throughout the name. “The DraftKings market maker can be a differentiator in creating liquidity, particularly in new varieties of markets and combo markets.”
Robins didn’t establish particular accomplice companies however recommended DraftKings’ markets might in the end function throughout a number of exchanges slightly than relying solely on its personal venue.
“We haven’t determined what number of exchanges we wish to function on, however we’ll positively be working our market maker on Railbird,” he stated.
The broader technique seems to hinge on leveraging DraftKings’ sportsbook infrastructure, together with pricing fashions, buying and selling knowledge, advertising and marketing attain and its present buyer base, to speed up liquidity quicker than standalone prediction market platforms.
“One good thing for us is we have already got a whole lot of what we’d like,” Robins stated.
“An actual lean-in from the CFTC” is driving confidence
When an analyst requested why the corporate is leaning extra aggressively into prediction markets now vs. the extra tentative method main as much as the DraftKings Predictions launch in December, Robins pointed first to what he described as a significant shift on the CFTC.
“There’s been an actual lean-in from the CFTC,” Robins stated. “What went from a hands-off posture from earlier interim chairs is now a full-fledged affirmation that [prediction markets are] firmly below their jurisdiction. They intend to defend it within the courts, they usually’re going to subject actual tips and rules.”
The feedback come as new CFTC chair Mike Selig has signaled a more market-friendly approach to prediction markets, emphasizing principles-based oversight and what he has described as “versatile guardrails” slightly than restrictive rulemaking. That evolving stance has been interpreted by business contributors as decreasing any regulatory uncertainty that beforehand hung over occasion contract platforms, notably in terms of sports activities markets.
Robins framed that regulatory readability as the most important barrier that has began to fall away for DraftKings.
“The greatest factor holding us again earlier than was regulatory uncertainty, and that’s been cleared up,” he stated. “Anything that creates a steady regulatory setting that enables us to function extra freely is a giant upside for us.”
DraftKings’ measured rollout additionally displays ongoing state-level authorized battles over prediction markets. Some states, together with Massachusetts and Nevada, are actively difficult sure platforms over sports activities occasion contracts, placing sportsbook operators like DraftKings in a fragile place as they attempt to develop predictions choices with out creating friction with the identical regulators who oversee their core sports activities betting licenses.
No DK Predictions income assumed, however spending is actual
DraftKings’ FY2026 steerage ranges assume continued funding in DK Predictions, whilst Robins instructed analysts it didn’t bake that income into the outlook.
“Predictions is all upside,” Robins stated. “There’s no income within the information. We’re assuming it is a 12 months we spend lots on buyer acquisition, like new person provides. There in all probability can be some income, nevertheless it’s too early to quantify, so we didn’t put any within the information.”
In the This fall earnings press launch, DraftKings set 2026 income steerage at $6.5 billion-$6.9 billion and adjusted EBITDA steerage at $700 million-$900 million, and stated these ranges “replicate anticipated funding in DraftKings Predictions.” Analysts had been expecting closer to $7.3 billion in 2026 revenue and roughly $981 million in adjusted EBITDA, that means DraftKings’ outlook landed nicely under Wall Street forecasts, a spot that contributed to the inventory selloff as traders weighed the prices of its prediction markets push.
DraftKings says it isn’t seeing OSB cannibalization
Investors have questioned whether or not prediction markets may siphon exercise from DraftKings’ sportsbook, notably given the similarities between occasion contracts and conventional sports activities wagering. Robins downplayed that danger throughout each his ready feedback and the analyst Q&A, framing Predictions as extra of an growth alternative than a substitute.
“We usually are not seeing a discernible influence from Predictions on our income,” the corporate stated in its earnings presentation, pointing to inside knowledge suggesting restricted overlap up to now between prediction markets exercise and its core betting enterprise.
A chart included within the earnings presentation reveals sportsbook operators persevering with to seize almost all buyer wagering exercise, with prediction markets accounting for roughly 1% or much less of pockets share in current months primarily based on the corporate’s evaluation.
During the Q&A, Robins stated the DraftKings Predictions will not be primarily an add-on for present sportsbook customers.
“Because the product is so comparable, it’s not one thing we see as largely incremental to our present prospects, and that’s why we don’t see a lot cannibalization from prediction operators in states we’ve been in,” he stated, including that the larger alternative lies in attracting new prospects in states the place DraftKings doesn’t but provide on-line sports activities betting.
Early DK Predictions customers are concentrated in Texas and California
Asked who’s utilizing DraftKings’ prediction markets product up to now, Robins pointed to geography, calling it a defining early sample.
“The most typical theme is prediction gamers are usually Californians and Texans,” he stated, including that in any other case they appear “lots like our present prospects.”
That issues strategically as a result of California and Texas stay the most important U.S. states with out authorized on-line sports activities betting, making prediction markets a path to amass and have interaction customers in jurisdictions the place sportsbooks can not function at this time.
Robins leaned into that comparability explicitly. “About half the nation, population-wise, was accessible for us to launch predictions in,” he stated. “In some methods it’s like if you happen to instructed me we opened up the remainder of the U.S. in a single day to a powerful model of a sports activities product.”
What comes subsequent for DraftKings’ prediction markets push
Robins repeatedly pointed listeners and analysts to DraftKings’ March 2 digital “Investor Day” occasion for a extra detailed prediction market playbook, particularly with reference to product design, advertising and marketing technique, and the way DraftKings expects to translate sportsbook benefits like pricing fashions, knowledge, and buying and selling infrastructure into the occasion contracts market.
The larger image is that DraftKings seems to be shifting from cautiously testing prediction markets to extra actively constructing round them. Whether that pays off will rely not simply on product execution, however on regulatory readability, investor persistence and whether or not the business can maintain deep, liquid markets at scale.
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