What They Do
DraftKings is a leading online sports betting and daily fantasy sports platform that lets users wager on sports events through mobile apps and websites. They make money by taking a cut of every bet placed (the "hold"), earning revenue from fantasy contest entry fees, and expanding into new verticals like online casino games and prediction markets. The company has rapidly scaled across 29+ US states as sports betting legalization has accelerated.
Investment Thesis
**Profitability inflection achieved** — First-ever profitable year with adjusted EBITDA tripling to $600M+ and margins expanding 1,000+ basis points to 17% in Q4**Structural margin expansion** — Parlay mix increased nearly 500 basis points in Q4 driving hold rates to 8%+ vs. historical 6.5%, creating sustainable competitive advantages**Prediction markets gold rush** — Management calls this "the most exciting growth opportunity since PASPA" with hundreds of millions in revenue potential as they invest aggressively to capture early market shareKey Risks
**Revenue growth deceleration** — CY26 estimates show declining revenue ($6.9B vs. $7.0B FTM) despite 13.6% growth guidance, suggesting market maturation concerns**Regulatory uncertainty** — Heavy dependence on state-by-state legalization and potential tax rate increases that could compress margins**Competitive intensity** — Saturated markets requiring higher customer acquisition costs while competing against FanDuel, BetMGM, and other well-funded rivalsGrowth Story
Revenue growth is moderating from 27% in FY2025 to an expected ~11% in FY2026 as core sports betting markets mature. However, DraftKings is pivoting aggressively to prediction markets as the next major growth driver, planning "tens of millions" in investment to capture this nascent category. The company is also expanding internationally and launching new products like iGaming in additional states.
Profitability Profile
DraftKings has reached a critical profitability inflection point, achieving its first-ever GAAP profitable year with 41.3% gross margins and rapidly expanding EBITDA margins. Q4 adjusted EBITDA margins hit 17% vs. 6% prior year, driven by operational leverage and structural improvements in betting hold rates. The company expects continued margin expansion with FY2026 EBITDA guidance of $700-900M.
Competitive Position
DraftKings holds the #2 market position behind FanDuel in US sports betting, with strong brand recognition and a technology-first approach. Their competitive moat centers on AI/ML-driven pricing models, parlay product innovation, and first-mover advantage in prediction markets. However, they face intense competition for market share and customer acquisition in an increasingly crowded field.
Recent Momentum
Q4 2025 delivered blowout results with revenue beating by 14.2% and nearly $2B in quarterly revenue (+43% YoY). The company achieved record profitability while maintaining strong user engagement, though management provided conservative FY2026 guidance to avoid previous guidance misses. January 2026 handle growth of +4% YoY despite tough comparisons shows resilient underlying demand.
What Wall Street Thinks
Analysts are likely weighing the impressive profitability turnaround against decelerating revenue growth, with CY26-27 EPS estimates of $0.31 to $1.13 showing expected continued margin expansion. The conservative guidance approach and aggressive prediction market pivot represent key debates, as investors assess whether new verticals can reignite growth or if core business maturation is inevitable.
The Bottom Line
DraftKings has successfully transitioned from a growth-at-all-costs model to sustainable profitability, but now faces the challenge of reigniting revenue growth in maturing markets while betting big on unproven prediction markets as the next growth engine.
