High-level management job cuts get attention when it comes to a top manager, but headline-grabbing deals don’t necessarily correlate with bankrupt companies. Even long-term names can feel vulnerable when portfolio rebalancing and thematic conviction shifts make even those names seem vulnerable in an unstable growing market and near a technology market.
The same dynamic is happening with DraftKings (DKNG) following ARK Invest’s sale of Cathie Wood last week. After holding DraftKings for a long time, ARK Invest just sold more than 300,000 shares, leading investors to wonder if there is more to this decision or if this is just a normal rebalancing of their portfolios. The sale comes at an uncertain time for DKNG stock in 2025, but the company is still seeing good revenue growth while reporting heavy losses.
As DraftKings continues to gain market presence and management says it is optimistic about its prospects, the main question investors may ask is simple: Is the sale of Cathie Wood a wake-up call or could it be an opportunity?
Headquartered in Boston, DraftKings is a sports entertainment and digital gaming company. It offers online fantasy sports, sports betting, and iGaming in multiple states and regulated markets. DraftKings leverages technology to deliver mobile betting and related digital media experiences to sports fans.
Valued at around $17 billion in market capitalization, after strong gains in previous years, it has had a tougher time this year. Year-to-date (YTD), stocks are down about 7%, reacting not only to broader technology fluctuations, but also to the unpredictability of sports results that sometimes favor bettors over the house. Yet the long-term story remains intact. DraftKings continues to expand its sports betting presence in the United States, opening new markets like Missouri that are expected to drive growth in the coming years.
However, from a valuation perspective, this appears to be a challenge, as DKNG’s multiples are extremely expensive compared to its peers. For example, its price-to-book ratio is 23.18, significantly higher than the industry median of 2.14, suggesting the stock is valued at a premium.
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Last week, ARK Invest revealed that it sold approximately 310,548 shares of DKNG worth $10.7 million. This news briefly shook the market, pushing DKNG slightly lower on the day. However, investors noted ARK’s history of frequent rebalancing in its ETFs, and DraftKings was just one of several reduction targets.
Traders largely took this decision in stride, focusing on fundamentals. In context, DraftKings had just released strong results and raised its guidance, so the selloff was seen more as an adjustment to the ARK portfolio. In the minutes following the announcement, the impact on stocks was modest and short-lived.
The general sentiment remained positive. Analysts pointed out that DraftKings’ core business continues to expand, indicating that Ark’s sale is a tactical shift rather than a bearish signal for DKNG.
DKNG shares fell about 3% after the company reported mixed third-quarter results and lowered its full-year outlook.
Although revenue rose 4% year-on-year (y-o-y) to $1.14 billion, it beat analysts’ expectations, reflecting a stark contrast between strong growth in online gaming, up almost 25%, and a 9% decline in sports betting revenue, with the friendly results weighing on continued betting.
GAAP net losses remained significant at $257 million, although adjusted EPS of -$0.26 per share was in line with analyst expectations, and adjusted EBITDA remained negative at $127 million.
On the positive side, DraftKings strengthened its liquidity, ending the quarter with $1.23 billion in liquidity and generating positive free cash flow while expanding its stock repurchase plan by $2 billion.
CEO Jason Robins remains optimistic about long-term growth, highlighting new products and marketing initiatives.
However, DraftKings lowered its fiscal 2025 revenue forecast from $5.9 billion to $6.1 billion, below the $6.2 billion expected, signaling near-term headwinds, particularly in sports betting performance.
Overall, while the market’s long-term expansion remains intact, the quarter highlights continued volatility that investors will need to manage with caution.
DraftKings has been busy expanding its offerings. On December 19, it launched DraftKings Predictions, a standalone market prediction app. This brings DraftKings into new betting lines under CFTC oversight, potentially expanding its market.
Recently, DraftKings also rolled out a Spanish language version of its sportsbook and casino to cater to this demographic. The partnerships provided further momentum: The company announced a multi-year deal that will make it the official sportsbook of ESPN, and New York regulators announced record betting revenue, with DraftKings’ share of $89.1 million for the month. These initiatives, as well as upcoming launches in states like Missouri, are widely viewed as positive by investors.
Most analysts are confident in DraftKings’ growth, while others remain a little cautious.
Recently, Morgan Stanley maintained an “overweight” rating on DKNG stock with a $50 price target, pointing to the company’s new market forecasting platform as a potential driver of long-term growth. Analysts said the product could significantly expand DraftKings’ addressable market over time, but they also cautioned that upfront investment and marketing costs could limit near-term upside and keep shares rangebound.
Goldman Sachs also remained constructive, maintaining a “Buy” rating while reducing its 12-month price target from $59 to $54 following the third-quarter report. The bank highlighted what it sees as an underlying strength in demand, including double-digit growth in betting on the NFL and NBA, while factoring in one-off headwinds from client-friendly sports results. Goldman said the valuation still implies significant upside potential from current levels.
Susquehanna reiterated its “Buy” rating with a target of $59, and several other companies made more modest adjustments. Canaccord Genuity lowered its target to $54, while MoffettNathanson reduced its target to $48, while maintaining an overall positive stance on long-term developments.
Overall, analyst sentiment remains favorable. DKNG stock boasts a “Strong Buy” consensus rating, with most analysts setting an average price target of $44.45, suggesting ~60% upside potential from the current price.
DraftKings’ long-term growth story remains intact, anchored by its growing market presence and product innovation. However, investors should note that DraftKings is a high-risk stock due to sharply negative EPS revisions and extreme valuation multiples relative to its consumer discretionary peers.
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As of the date of publication, Nauman Khan did not have (directly or indirectly) any position in any of the securities mentioned in this article. All information and data contained in this article are for informational purposes only. This article was originally published on Barchart.com
