The Betting Market Has a Monetization Problem
DraftKings Inc. (NASDAQ:DKNG) is winning more betting activity but collecting less revenue from it. The second quarter of 2026 exposed the gap: sports consumer volume rose 15% to $13.1 billion, while company revenue declined 5% to about $1.44 billion. The apparent contradiction matters because the online sportsbook business depends not only on how much customers wager, but also on how much of that volume the operator retains after payouts and promotions.
The question becomes more urgent as prediction markets compete for attention. Kalshi and Polymarket have expanded event-contract trading while state regulators and federal courts dispute how sports-related contracts should be treated. For DraftKings Inc., entering an adjacent business could expand the customer pool, but it also adds spending before the company has established its economics.
DraftKings has secured third place among the 10 best growth stocks under $50 to buy now, placing it ahead of seven companies operating across several industries. However, two stocks attracted even greater hedge fund interest. Neither needs to rely on the online sports betting market to pursue growth, so what puts them ahead of DraftKings?
The Cost of Winning More Customers
Monthly unique payers increased 9% YoY to 3.6 million in the June quarter, but average revenue per monthly payer fell 13% to $132. Sports net revenue margin narrowed from 8.7% to 6.8%, reflecting customer-friendly game results and heavier promotions. At $13.1 billion in sports consumer volume, a one-percentage-point change in net revenue margin would represent approximately $131 million in revenue, assuming transaction volume remains unchanged. That arithmetic explains why operating momentum did not protect the bottom line.
Adjusted EBITDA declined to $114.6 million from $300.6 million, while sales and marketing expenditure rose to approximately $322.5 million. On a GAAP basis, DraftKings swung to a $67.6 million net loss from a $157.9 million profit a year earlier, underscoring how weaker sportsbook margins and rising costs have pressured earnings. In September, Jim Cramer raised a related concern about the expense of attracting gamblers: readers can explore why Jim Cramer questioned DraftKings’ customer-acquisition economics. The company retained its 2026 revenue outlook of $6.5 billion to $6.9 billion and adjusted EBITDA guidance of $700 million to $900 million, leaving execution in the second half important.
Prediction Markets Could Expand Reach, but First Add Costs
DraftKings Inc. is moving into prediction markets, but the size of the revenue opportunity is not yet equivalent to forecast earnings. The new category faces unresolved legal questions and competition from exchanges that have attracted considerable private capital. Industry weakness is not exclusive to DraftKings; how Flutter’s repeated guidance cuts exposed pressure across sports betting offers a useful comparison of how quickly confidence can change when guidance is reduced.
Guggenheim kept Buy but lowered its DraftKings target to $30 from $33 on October 7 after increasing its modeled net investment in prediction markets to roughly $400 million, compared with management’s previously discussed $200 million to $300 million range. That $400 million is an analyst scenario, not revised management guidance. Susquehanna (Positive, $27 from $33) also sees near-term profit pressure; Bank of America upgraded to Buy with a $27 target, placing greater weight on longer-run opportunity.
Future Earnings, Not Wagers, Determine the Multiple
Based on Seeking Alpha estimates as of October 13, DraftKings Inc. traded at roughly 173.38 times estimated 2026 earnings, with the implied multiple dropping to 23.58 for 2027, 12.82 for 2028, and 9.69 for 2029. Forecast EPS growth of 635.37% in 2027 comes from a small base and should not be confused with comparable revenue growth. The valuation therefore depends on a sizable and sustained conversion of customer activity into profit.
DraftKings Inc. is also using a $700 million term loan and $750 million revolving credit facility to broaden financing flexibility. These facilities provide liquidity options, but debt proceeds do not substitute for sportsbook cash flow. The combination of high projected EPS growth and additional investment makes incremental marketing efficiency and retained betting revenue more useful indicators than headline wager volume alone.
DraftKings Inc. can attract customers, but the financial test is whether it can defend sportsbook margins while developing prediction markets without consuming the profits its core business is expected to generate.
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