Missed revenue estimates by 5% due to sportsbook outcomes. iGaming revenue beat estimates by 4%. Note that Jackpocket M&A is a material revenue-per-payer headwind.

“Underlying growth in the business is accelerating.” – Co-Founder/CEO Jason Robbins

Analysts were anticipating a large reduction, but this was beyond expectations. No, this was not related to prediction market competition. It was due to a $300M friendly outcome headwind. They lowered by $300M solely because of this. This led to the large EBITDA cut too, while planned investments in its prediction market product launch meant the EBITDA cut was a bit amplified.

It sounds like investment levels in mature sports betting states will fall Y/Y in 2026. That should provide more leverage, while they also expect to keep cutting overall promo rates. They have plans to invest more in AI, but a lot of that will entail efficiency gains that offset the profit headwind. 2026 investment focus areas will be on new states (hopefully some iGaming legalization wins) and prediction markets.

DKNG trades for about 20x forward EPS. EPS is expected to grow from $0.24 to $1.67 this year, by 83% the following year and by 50% the year after that. It has not been profitable for long enough to use anything but a sales multiple chart below. Estimates for 2025 will fall sharply due to the EBITDA revision (somewhere around $1), but I think any negative revisions for 2026 will be modest if there are any. Again, this miss is all luck-related.

Demand – Signal vs. Noise:

Another quarter of terrible outcome luck leading to sharp misses and guidance reductions. Again, this was the entire source of the $300M revenue guidance reduction for the year. Not customer acquisition trends, which “was a bright spot” for the firm… not engagement, which was great… not retention, which is improving… not promotion efficiency, which keeps rising…. outcome luck. This is not structural, and while it is moderately annoying, it is not concerning. Some want DKNG to hedge this risk to eliminate a bit of the quarterly volatility, but that’s short-sighted. Maximizing expected value means they should not be hedging. They want to make the most money over the next several years… not next quarter. These fluctuations will continue. Sometimes they’ll help results like last quarter… and sometimes they’ll hurt like this quarter. What matters most? DKNG’s structural (expected) hold rate keeps rising as parlay mix sharply improves. That tells us expected revenue from apples-to-apples bet volume will rise in a non-linear, yet convincing way over the coming years. Finally, 2% Y/Y monthly unique payer (MUP) growth was actually 6% Y/Y excluding the states Jackpocket had to exit. That’s despite zero new state launches enjoyed.

A Lot More Info on Demand and Prediction Market Competition:

Prediction markets are not slowing DKNG down. I repeat… They are not slowing DKNG down. I realize volume growth is slower than it has been in some quarters (still accelerated Q/Q), but there’s a lot of needed context. First, it’s not enjoying ramps from new launches like it did last year. They got a 7% population boost with North Carolina and Vermont coming online, with that leading to tougher comps in this quarter. Next, quarterly volume is influenced by timing and amount of big events. That was another headwind this quarter that reverted in October. That is why October handle growth accelerated to 17% Y/Y despite Robinhood’s early success. Again, this is tied to event timing, so it’s noisy. What is less noisy is comparing full season-to-date volume growth in 2025 vs. 2024. And that looks really good for both the NFL and NBA. Both accelerated (13% growth for NFL and 19% growth for NBA) in the first year in which DKNG is competing with these new entrants. That was wonderful to hear.

The team is also highly confident in structural cost advantages and product menu. Starting with cost, prediction markets involve several more parties than a vertically integrated sportsbook like DKNG. Fewer mouths to feed (no Futures Commission Merchants or Introducing Brokers) inherently leads to more margin opportunity on apples-to-apples revenue for DKNG.

That allows DKNG to be more generous with promotions than others can rationally be over the long haul. And this is why DraftKings has better all-in pricing than prediction markets the convincing majority of the time. The viral posts about prediction markets offering better odds are the byproducts of deep treasure hunts to find lines that support this idea. It’s not the norm.

Furthermore, considering DKNG is the market maker (rather than a prediction market exchange), it doesn’t need to incentivize other market makers to provide liquidity on its platform. DKNG’s massive scale, consistent volume and pretty balance sheet all let it do this on its own. Meaning? The superior flexibility to offer customer promotions is amplified by the fact that all of these promotions can go to customers… rather than needing to motivate market makers to use your exchange.

But wait… there’s more. DKNG’s self-owned betting platform means it can choose to provide liquidity for any kind of parlay or micro-betting line it wants to. They don’t have to win liquidity (with expensive incentives) from the competition in order to offer a new bet every single time they want to. Prediction markets will start offering more assortment, and the lead might shrink a tad, but it will remain intact. That also means DKNG’s parlay mix should be durably higher than prediction markets… which means they’ll have another hold rate advantage… which means they’ll have another efficiency advantage.

One more note here. There’s concern about DKNG’s pricing needing to get more favorable to compete with prediction markets and related concern over the margin impact. That’s not happening and a lot of the factors above explain why. But here’s more evidence. If you exclude just 7 NFL games from the season, their hold rate would be a whopping 18%. That is a direct sign of no structural changes to pricing philosophy playing out. More noise.

Other Indirect Prediction Market Proliferation Perks:

Robbins sees prediction markets motivating more states to legalize sports gambling. They want their tax dollars and they see prediction markets growing and preventing them from collecting as much of those dollars as they know they can. And for existing states? This new perceived competitive threat should make them think twice about hiking taxes. They want volume flowing through DKNG… not Robinhood (lower taxes). They want optimal tax dollars; this change could mean a lower effective tax rate delivers those optimal tax dollars.

Why Launch DKNG Predictions if Your Format is So Much Better?

Great question. Two reasons. First, they get immediate access to 25 more states. Those are the states where they will offer sports contracts. They will not do so in existing legal markets to avoid upsetting regulators and also because they know their product is so much better. Furthermore, they can offer incremental bet types in any state for elections, fed rate decisions etc. They view the prediction market offering as better than nothing in places where they don’t operate and incremental for categories they aren’t already in. That’s why they’re launching. They are convinced that prediction markets will make very little progress in taking market share for existing legal states (just like in Europe where this has been legal for longer)… but they still obviously want market share in the rest of these states… even if that means DraftKings needs a second-rate product vs. their own sportsbook for now.

In terms of launch plans, they will be highly conservative in lifetime value (LTV) and retention assumptions at the start. As they see preliminary spend potentially working, they will lean in. Interestingly, they’ve allocated more budget than they’ll potentially need for Q4, meaning that could easily become a source of EBITDA upside.

Between the structural cost advantages, distribution partnerships with Amazon, NBC Universal and now ESPN, their brand strength, their scale and their years of experience, they are confident in offering a best-in-class prediction offering and winning this market.

Hello (again) ESPN:

Well… ESPN Bet is shuttering. The most iconic sports brand with the most rights and the largest fantasy sports offering in the world couldn’t win market share from DraftKings. And people think Kalshi is going to? Maybe they’re right, but I’m increasingly confident that they’re not.  DKNG and ESPN have a new exclusive integration for all sports and platforms. This gives DKNG partnerships with companies representing 73% of NBA rights, which is already helping it gain market share this year.

ESPN wants to build interactive live betting experiences to make viewing their content more interesting to more people. ESPN needs the book that leads in live betting up-time availability by a mile. DraftKings is that partner (500 bps lead vs. 2nd place Fanduel) and got this partnership partially because of how good their live product is. Two titans in the sports landscape reuniting. 

More on Product:

DKNG added more bet assortment, new micro-betting markets, personalized, data-driven parlay recommendations and social leaderboards to keep improving its already top-ranked app. The leaderboard product specifically led to strong NBA handle growth. They added Ghost Legs (eliminate one leg from a parlay that doesn’t hit) and early exit for prop wagers if players get hurt. The most exciting product news is their upcoming Spanish language launch for the 2026 World Cup (and everything else). This is 15% of the population in states where DKNG is legal. DKNG’s product is suboptimal for a large % of their addressable market. That’s changing. FanDuel already has this, and DraftKings will soon close that gap.

Not much on iGaming this quarter (but strong revenue growth). They brought in Christian Bogstrand as the new product General Manager. He was previously an executive at Bet365 and is highly regarded in the space.

Great quarter. If you only look at the headline numbers and nothing else, you’ll rightfully think I’m crazy. But this is why I feel an obsessive need to read everything. It helps dearly in sorting signal from noise, and these numbers were extremely noisy. The entire reduction is based on outcome luck. Everything that needs to look good for me to be optimistic in durable multi-year growth looks excellent. The added detail we got on DKNG vs. prediction markets was all appreciated and encouraging. DKNG is a structural grower showing everyone they can gracefully fend off new entrants like they have so many times in their past. If they can easily beat ESPN… with its aggressively marketed and ubiquitously distributed sportsbook… I think they can and will beat everyone. That was the true test (not Kalshi) and this new partnership means they passed with an A+. I am so pleased with this quarter and more confident in holding my shares (and adding like I did today) than I was a week ago. Strong showing in all the places that matter.