DraftKings Stock Down 28% in Three Months: Buy the Dip or Stay Away?

DraftKings Inc. DKNG has shed nearly 27.8% of its value over the past three months. Much of the pressure stems from the company’s weaker-than-expected third-quarter 2025 results and reduced fiscal 2025 outlook.In the same time frame, the industry has declined 5.7%, while the S&P 500 has gained 7.7%. In the past three months, the stock has also underperformed other industry players like Wynn Resorts, Limited WYNN, Caesars Entertainment, Inc. CZR and MGM Resorts International MGM.Price Performance Image Source: Zacks Investment ResearchManagement acknowledged that the quarter came in well below expectations, largely due to an unusually sharp swing in “customer-friendly” sports outcomes. In September and October alone, these outcomes reduced revenues by more than $300 million, dragging adjusted EBITDA deep into negative territory and forcing the company to cut its full-year revenue forecast to $5.9-$6.1 billion from the prior $6.2-$6.4 billion range. Despite strong engagement and handle growth, the short-term financial hit has weighed heavily on market sentiment.Beyond the unfavorable sports outcomes, DraftKings’ updated guidance also reflects incremental spending tied to new initiatives, including its upcoming predictions product and early investment tied to new media partnerships. Spending on product development, customer service readiness and targeted marketing ahead of the prediction-market rollout, all before revenues are generated, has added to investor concern. When combined with soft third-quarter 2025 revenue growth of just 4% and negative EBITDA of $127 million, investors are questioning whether DraftKings is entering a more volatile earnings phase.Deeper Look at the Negative Factors Pressuring DraftKingsThe most prominent factor contributing to DraftKings’ recent stock slide is the extreme variance in sports outcomes during third-quarter and early fourth-quarter 2025. Management was clear that only a handful of NFL games produced the majority of the more than $300 million revenue impact. DraftKings had benefited from an opposite swing in second-quarter 2025, where sportsbook-friendly results added nearly $100 million in revenues.But the third-quarter 2025 reversal highlights the earnings volatility inherent in sports betting, particularly around high-volume, single-event concentration sports like the NFL. Although management reiterated that outcomes normalize over time, the impact on quarterly performance was severe enough to disrupt previously strong momentum and lower guidance.Another headwind is the revised profitability outlook. DraftKings slashed its fiscal 2025 adjusted EBITDA projection from $800-$900 million to $450-$550 million, marking a material downgrade. While the majority of this gap is tied to unfavorable outcomes, the company also baked in higher fourth-quarter 2025 spending tied to product development, particularly the launch of its predictions platform, as well as incremental investment related to major media partnerships with ESPN and NBCUniversal.The lack of clarity on how quickly the predictions offering will scale, combined with the acknowledgment that early customer retention could be challenging, adds an extra layer of uncertainty for investors evaluating near-term cash flow visibility.Lastly, the investment cycle around predictive markets and AI could weigh on margins in the short run. DraftKings is preparing for a significant expansion into prediction markets, including costs for launching Railbird, building liquidity, supporting regulatory dialogues and testing customer-acquisition models. While management insists payback periods will be shorter than traditional online sports betting, the lack of historical performance data makes it difficult for analysts to model earnings accurately. The company is also planning incremental AI investment, which may only partially pay off in 2026, creating additional timing uncertainty.Signs of Strength: Underlying Fundamentals Still Look HealthyDespite the setbacks, DraftKings remains confident that its long-term earnings power is intact and several data points support that view. First, underlying customer metrics are as strong as ever. Excluding Jackpocket, Monthly Unique Players grew 6% and customer acquisition accelerated year over year even without new state launches.Betting engagement remains robust, with sportsbook handle rising 10% to $11.4 billion and accelerating to 17% year-over-year growth in October. Parlay mix, the backbone of DraftKings’ long-term margin expansion strategy, continues to surge, up 800 basis points in the NFL and 1,000 basis points in the NBA season to date. iGaming momentum also strengthened, with net revenues growing 25%, the fastest pace since early 2024.A second major positive is DraftKings’ expanding strategic positioning, particularly through its exclusive marketing partnerships with ESPN and NBCUniversal. These deals offer unprecedented reach, brand affinity and integration opportunities across sports content, fantasy databases and digital platforms. Early signs point to meaningful NBA share gains, and the company expects the agreements to amplify engagement and customer retention moving forward.DraftKings is preparing to launch a Spanish-language sportsbook interface ahead of the 2026 World Cup, an opportunity to capture a fast-growing demographic segment in both current and future states. Add to that the company’s planned entry into prediction markets, targeting the half of the U.S. population still without online sports betting, and the roadmap for expanding its total addressable market appears compelling.DKNG’s Earnings EstimatesIn the past 30 days, the Zacks Consensus Estimate for 2025 and 2026 earnings has declined to $1.13 and $2.02 from $1.24 and $2.15, respectively.Image Source: Zacks Investment ResearchDraftKings Trades at a DiscountThe company is currently valued at a discount compared with the industry on a forward 12-month P/S basis. DKNG’s forward 12-month price-to-sales ratio stands at 2.18, lower than the industry average.P/S (F12M)Image Source: Zacks Investment ResearchHow to Play DKNG Now?DraftKings’ recent performance signals a period of heightened uncertainty, making it a cautious choice for investors right now. The company is grappling with unusually unfavorable sports outcomes, which exposed the inherent volatility in its core sportsbook business and led to weaker results. At the same time, DraftKings is entering an aggressive investment cycle, ramping up spending on new prediction products, media partnerships and AI initiatives, before these efforts can generate meaningful returns.This combination of unpredictable earnings swings, lower profit expectations and rising upfront costs has clouded near-term visibility and shaken confidence in the company’s ability to deliver stable growth.While long-term fundamentals remain constructive, the immediate risk-reward balance appears unfavorable, suggesting investors may be better off staying on the sidelines until profitability trends stabilize and the benefits of its new initiatives begin to materialize.DKNG currently carries a Zacks Rank #5 (Strong Sell).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.#1 Semiconductor Stock to Buy (Not NVDA)The incredible demand for data is fueling the market's next digital gold rush. 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(DKNG): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks