DraftKings cut its 2026 adjusted EBITDA guidance to $175 million-$275 million from $700 million-$900 million, and the shares fell sharply.
Management put much of the reduction down to Predictions, the prediction-markets business it's building. The unit is expected to absorb $650 million-$700 million in adjusted EBITDA this year, and DraftKings plans to spend as much as $700 million on the build-out.
While a headline put the drop at 20%, PYMNTS said the shares fell more than 26% on Friday and nearly 30% after the earnings report and investor call. The sell-off points to a market that will no longer price customer growth on its own, apart from the profit it takes to produce that growth.
| DraftKings | |
|---|---|
| 2026 adjusted EBITDA guidance, before | $700 million-$900 million |
| 2026 adjusted EBITDA guidance, after | $175 million-$275 million |
| Predictions adjusted EBITDA cost, 2026 | $650 million-$700 million |
| Planned Predictions build-out spend | up to $700 million |
| Core business adjusted EBITDA, 2027 | about $1.2 billion |
Third-quarter revenue fell short of forecasts
Revenue came in at $1.33 billion for the third quarter, up 16% from a year earlier and below the roughly $1.4 billion analysts had expected; losses were larger than forecasts as well.
The sportsbook kept growing. Net revenue there rose 36% year on year. Handle climbed 12% and the net revenue margin widened to 6.4%.
- $1.33 billion+16% year on yearThird-quarter revenue
- +36%Sportsbook net revenue
- +12%Handle growth
- 6.4%Net revenue margin
- 1.6 million+Predictions customers year to date
- About 20 monthsPayback on the 2026 customer cohort
Gross revenue that nets to almost nothing
This year, about 90% of the gap is new-customer incentives, Robins told analysts. In 2026, hundreds of millions of dollars of gross Predictions revenue should turn into close to no net revenue at all.
DraftKings is betting hundreds of millions of dollars on customers it may not be allowed to serve with the same products two years from now.
The brokerage, the DKeX exchange and the market-making operations behind Predictions are all owned by DraftKings. Across those functions it reported a combined take rate of about 11.1% in September and October, keeping roughly two-thirds of gross revenue.
So far this year, more than 1.6 million customers have engaged with Predictions. Management expects its 2026 cohort to repay the cost of acquiring those customers in about 20 months.
By 2027, management projects $650 million-$750 million of Predictions revenue and about $500 million of gross profit.
Where the gross goes, and where it should land
2026
Gross to net
- Hundreds of millions of dollars in gross Predictions revenue
- Expected to translate into almost no net revenue
- About 90% of the gap is new-customer incentives
- Combined take rate of about 11.1% in September and October
- Roughly two-thirds of gross revenue retained
2027 target
Predictions
- Revenue of $650 million-$750 million
- About $500 million in gross profit
The bet runs into 2028
The base case assumes a Supreme Court ruling around mid-2028, Robins said, but neither the outcome nor the timing is settled. A complete elimination of sports contracts is severe but plausible, management called it.
- Mid-2028Supreme Court base case DraftKings' planning assumes a ruling around then, with the outcome and timing uncertain.
- July 2028Prohibition stress test The 2026 cohort would have repaid its acquisition costs, and the 2027 cohort would be more than halfway toward repayment.
- Within four yearsRecovery path Management estimates full recovery through other products.
Management has also run the downside: if sports prediction contracts were prohibited in July 2028, the 2026 cohort would have repaid its acquisition costs and the 2027 cohort would be more than halfway toward repayment. Full recovery through other products would take within four years, management estimates.
What the money buys is a customer relationship. DraftKings wants to monetise those customers across Pick6, Lottery, non-sports predictions and other products; Predictions can also bring people onto the platform in states without legalised online sports betting, before a conventional sportsbook is available there, management said.
Robins suggested that predictions beyond sports could ultimately account for at least 25%-30% of the size of the current sports business.
The core operation is expected to carry the group in the meantime: management forecasts about $1.2 billion of adjusted EBITDA from it in 2027, at margins of roughly 18%.
Trading volume is booming. Profits aren’t.
The next test is whether Predictions can deliver the projected $700 million of 2027 revenue while acquisition spending comes down and customers stay engaged.
