DraftKings Inc. reported very strong growth in Q2, sending the stock up. Underlying indicators don't signal such strength. Growth in betting handles and active users has slowed down, while favorable sports results drove up growth. DraftKings has maintained its market share rivalry with FanDuel in sports betting, but lost share in iGaming. DKNG stock's valuation reflects DraftKings' growth prospects well. I estimate a fair value of $47.3. Simon Supriyadi/iStock via Getty Images

DraftKings Inc.) reported the company’s on the 6 th of August after market close. The online betting giant showed rapid growth, resulting in continued operating leverage as DraftKings still eyes a long margin expansion runway. Yet, the quarter reflects slowing underlying growth, hidden by favorable sports results. The market’s enthusiastic initial post-earnings doesn’t seem to reflect such weakness. I downgraded my rating to Hold in my previous , titled "_DraftKings: Q4 Earnings, Bold 2025 Ambition But A Corresponding Valuation._" The stock has since lost -9% of its value, underperforming the S&P 500’s () gain of 4%. My Rating History on DKNG (Seeking Alpha)

DraftKings Q2: Not as Good as Financials Suggest DraftKings reported significantly faster growth in Q2 than in previous quarters. Revenues came in at $1.51 billion, up by 37% year-on-year and beating Wall Street’s by $80 million. Earnings followed the topline result as DraftKings’s adjusted EBITDA reached $301 million, surging _by 135%_ year-on-year through rapid operating leverage. The adjusted EPS of $0.38 still missed Wall Street’s consensus by $0.03. The strong financial performance reflects several factors, and I believe that DraftKings’ performance isn’t nearly as good as the topline figure alone suggests.

Signifying underlying growth the best, DraftKings’ sportsbook handle grew by 6%, even showing _significantly slower_ _growth_ than in previous quarters – the pace of underlying growth seems to be slowing down. Also underscoring a slowdown, DraftKings’ unique customers sequentially at 10.4 million for the first time since 2020. Monthly unique payers did still grow by 6% year-on-year, on pace with handle growth.

DKNG Q2'25 Investor Presentation DraftKings’ improved hold percentage, having significant short-term turbulence due to volatile sports results, accounted for the significant majority of revenue growth. The realized sportsbook hold percentage exceeded 11.5% in Q2, up from a much weaker performance in . The company’s improvements in the structural hold percentage drove around a sustainable 100 basis point gain in the realized hold percentage, but the strong hold was also a result of in the Super Bowl and in other events; realized hold came in around 60 basis points above DraftKings’ 10.9% structural hold percentage, temporarily boosting revenues. In the comparison period, DraftKings conversely noted customer-friendly sports outcomes. While DraftKings’ improved structural hold continues to drive up revenue growth through a higher mix of parlay bets and other strategic improvements, long-term growth is ultimately reliant on handle growth as taking an increasing share of betting volume becomes increasingly hard.

Flutter Entertainment’s () FanDuel does a significantly higher 14.1% structural hold, but Flutter’s massive international market expertise, very effective odd pricing technology, and successful, aggressive parlay promotions continue to support the competitor’s industry-leading structural hold advantage. I don’t assume DraftKings will reach a similar level, although DraftKings could still inch somewhat closer to FanDuel’s level. DraftKings does still compete effectively with FanDuel in – the two platforms continue to have a chokehold on U.S. sports betting, but DraftKings has now recaptured a very narrow lead in total handle. DraftKings’ slower growth in sports betting handle is a reflection of weaker industry growth rather than a failing market position.

In the iGaming segment, DraftKings’ revenue growth still reached 23%. Yet, DraftKings’ iGaming segment revenues have now remained stagnant in the past three quarters, and year-on-year growth in the segment looks to slow down soon as comps become harder. FanDuel has taken iGaming from DraftKings in recent months, weakening the segment’s growth outlook.

DKNG Q2'25 Investor Presentation Even though DraftKings’ handle growth has slowed and iGaming market share has recently declined, I believe that the company is still positioned for good earnings growth through general industry growth – the reiterated $6.2-6.4 billion 2025 revenue guidance suggests 32.1% growth at the midpoint, and the EBITDA guidance of $800-900 million points towards significant margin progress despite higher tax rates in New Jersey, Louisiana, and Illinois. DraftKings is eyeing a market launch in Missouri, adding in additional population to the company’s market reach. Structural hold advancements still add some further revenue growth potential. DraftKings the lucrative prediction market, but hasn’t yet entered the market definitively.

DraftKings’ Valuation Is Fair I have updated my discounted cash flow (DCF) model for DraftKings. As DraftKings still has revenue potential through general industry growth and an improved structural hold, I still expect good revenue growth at a 2024-2034 CAGR of 10.7%. I assume growth to stabilize at 3% afterwards. DraftKings’ relatively stable cost base enables incremental revenue growth to trickle down to earnings at an impressive rate. I assume the EBITDA margin will eventually hit 30%, being DraftKings’ long-term target. Online betting giants in mature global markets have achieved similar margins, making the target believable. I still assume 10% dilution to DraftKings’ outstanding shares due to the company’s high stock-based compensation. I have kept my cash flow conversion assumptions similar, suggesting a very good after-tax conversion rate from EBITDA.

DCF Model (Author's Calculation) The estimates put DraftKings’ fair value at $47.3, near the stock price at the time of writing – I believe that DraftKings remains fairly valued. Growth will likely slow down after 2025, but such a slowdown to more sustainable momentum is already reflected. The fair value estimate is down slightly from $48.7 previously.

CAPM The DCF model uses a cost of capital [WACC] of 10.48%, derived from a capital asset pricing model: CAPM (Author's Calculation) I still don’t assume DraftKings’ debt will reach a noteworthy level when considering the long term. For cost of equity, I use the 10-year bond () as the risk-free rate. The equity risk premium of 4.62% is Professor Aswath Damodaran’s most recent July for the US. I have kept the beta estimate at 0.98. With an ESG addon of 1.5% and a liquidity premium of 0.2%, the cost of equity and WACC both stand at 10.48%.

Takeaway DraftKings Inc. reported very strong earnings growth in Q2, but the company’s performance isn’t as strong underneath. Handle and active user momentum slowed down, being a more accurate indicator of longer-term growth. Favorable sports results drove a good part of strong Q2 growth. Further, while DraftKings has maintained its market share rivalry with FanDuel in sports betting, the company has lost iGaming market share in recent months. Yet, structural hold improvements, new market entries, and fair user momentum still maintain a good overall growth outlook for DraftKings. The stock has a valuation that reflects growth prospects fairly, and as such, I remain with a **Hold rating** for DKNG stock.

DraftKings Q2: Not As Strong As Financials Suggest (NASDAQ:DKNG)

DraftKings Inc. reported strong Q2 financials, including $1.51 billion in revenue and 135% year-on-year growth in adjusted EBITDA, but underlying growth indicators like sportsbook handle growth and iGaming market share have slowed. The company maintains a competitive edge in sports betting but has lost ground in iGaming. Its valuation is considered fair at $47.3, with a Hold rating.