Key Points

DraftKings sustains robust revenue increases, though at a reduced rate.
The firm aims to tap into prediction markets and build a super-app to spark fresh expansion.

DraftKings (NASDAQ: DKNG) stands as yet another past market standout now sidelined by investors. Unlike artificial intelligence trends driving other declines, this online sports betting powerhouse suffers from the surge in prediction markets. Shares have dropped more than one-third over the last year.

Rather than standing idle, DraftKings seeks to harness prediction markets advantageously. It pursues this through two primary strategies. First, it launches its own prediction market platform, allocating $200 million to $300 million toward product development and promotion.

The company plans to unify its sportsbook into a comprehensive super-app that merges sportsbook betting, online gaming, lottery products, and prediction markets into a single platform. The app will display only offerings legal in each user's state. This initiative ramps up in time for the approaching soccer World Cup.

Initial signs from the prediction market effort prove promising. In April, following quarter-end, annualized consumer volumes rose 38% month over month, surpassing $1 billion, while total annualized volumes increased 43% month over month to exceed $2.3 billion.

Concurrently, DraftKings advocates for more states to approve sports betting and iGaming amid competition from untaxed prediction markets. Notably, no states raised taxes on licensed online sports betting this year because of prediction market pressures.

Facing prediction market challenges, DraftKings delivers steady growth. First-quarter revenue grew 17% to $1.65 billion. Sportsbook revenue advanced 24% to $1.1 billion, with handle (total wagers) up 1.5%. Parlay handle share expanded 300 basis points year over year; parlays yield higher hold rates, boosting profitability. iGaming revenue climbed 9% to $461.3 million.

Adjusted EBITDA soared 64% to $167.9 million in the quarter. Adjusted EPS improved from $0.12 to $0.20.

The firm upheld its 2026 outlook, projecting revenue of $6.5 billion to $6.9 billion and adjusted EBITDA of $700 million to $900 million. This implies 14% revenue growth at the upper guidance range and 45% EBITDA expansion.

Is the stock a buy?

Though prediction markets constrain DraftKings' momentum, the company embraces them to emerge as a key contender. With sportsbook access limited to slightly more than half the U.S. population, substantial upside exists. Bipartisan legislation targeting illegal sports prediction bets could pass, delivering major relief.

Shares trade at a forward P/E of 14 times 2027 consensus estimates, appearing undervalued. At current prices, a modest position merits consideration - investors stand to gain via super-app and prediction-driven acceleration or favorable regulation.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.