DraftKings Q2 Earnings Preview: Can Strong Holds and Market Expansion Offset Rising Tax Headwinds?

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DraftKings (DKNG) is set to report second-quarter 2025 results after the market closes today, August 6, with investors laser-focused on whether the company can keep its winning streak alive amid rising regulatory pressures and shifting consumer dynamics. The stock has gained more than 20% year-to-date and about 43% over the past twelve months, handily outperforming the broader S&P 500 since early June. Yet, with shares trading near stretched valuations and technical momentum already reflecting optimism, any disappointment in guidance could prompt a pullback. Analysts see strong topline growth in the quarter, but the spotlight will be on adjusted EBITDA performance, user engagement, and management’s outlook for the rest of the year as tax hikes and new market launches loom.

Consensus calls for DraftKings to post adjusted EPS of $0.41, up sharply from $0.12 in the same quarter a year ago, on revenue of around $1.42 billion to $1.43 billion. That would represent year-over-year growth of roughly 28% to 30%. Monthly Unique Payers (MUPs) are expected at approximately 3.9 million, up from 3.1 million last year but below the 4.34 million reported in Q1, which raises questions about user momentum heading into the fall sports season. Adjusted EBITDA is forecast at more than $200 million, with some analysts expecting upside of $40 million to $50 million relative to the Street’s $242 million estimate, thanks to favorable May and June hold rates.

The main growth drivers for the quarter are expected to include continued customer acquisition in online sports betting and iGaming, expansion into newly legalized states, and the integration of acquisitions like SimpleBet, which has boosted DraftKings’ real-time wagering capabilities. Analysts also point to an increase in parlay handle mix and a higher structural sportsbook hold percentage as potential profitability levers. On the flip side, management has cautioned that marketing expenses remain elevated as the company continues to push for market share gains. Regulatory headwinds are another key risk: Illinois recently imposed a per-bet tax, prompting DraftKings and rival FanDuel to implement 50-cent transaction fees starting in September, while Maryland’s increased tax rate has added incremental costs.

Investors will also be watching closely for updates on DraftKings’ budding foray into prediction markets, a segment that could expand its footprint into areas beyond sports betting. Benchmark recently reported that DraftKings is in talks to acquire Railbird Exchange, a federally licensed prediction market platform. If consummated, this move would allow the company to tap into markets like California and Texas, where online sports betting remains prohibited, potentially broadening DraftKings’ addressable market ahead of the NFL season.

Looking back at Q1 2025, DraftKings posted revenue of $1.409 billion, up 20% year-over-year, and adjusted EBITDA of $103 million, demonstrating solid profitability gains despite customer-friendly sports outcomes that dented hold rates in March. Sportsbook handle rose 15% year-over-year to $13.9 billion, while structural sportsbook hold improved by 50 basis points to 10.4%, thanks in part to increased parlay activity. Adjusted gross margin climbed to 45%, up more than 100 basis points from the prior year, aided by more efficient promotional deployment. Management did revise full-year guidance downward, citing $170 million in revenue headwinds and $111 million in adjusted EBITDA headwinds tied to those customer-friendly results and new tax burdens. Still, executives struck a confident tone, projecting fiscal 2025 revenue of $6.2 billion to $6.4 billion and adjusted EBITDA of $800 million to $900 million.

CEO Jason Robins has emphasized that product innovation and promotional efficiencies are helping DraftKings maintain strong engagement, while CFO Alan Ellingson has pointed to improving gross margin trends and a healthy balance sheet with $1.1 billion in cash. Notably, the company repurchased 3.7 million shares in Q1, signaling confidence in its long-term trajectory. Analysts expect the company to reiterate its full-year guidance tonight, though some, including Citi, caution that management may guide to the lower end of its EBITDA range given ongoing regulatory pressures and the delayed Missouri launch now scheduled for December.

Analyst sentiment remains broadly bullish heading into the print. Wall Street’s average price target sits at $54.32, implying about 20% upside from current levels, with most analysts rating the stock a “Strong Buy.” Still, revisions have trended mixed: while some firms have raised estimates in response to strong hold data, others have cut forecasts to reflect higher taxes and incremental investments in prediction markets. Buy-side conversations suggest that 2026 EBITDA expectations may be running ahead of Street estimates, at $1.2 billion to $1.3 billion versus the consensus $1.415 billion, largely on concerns around tax burdens and new strategic investments.

In sum, DraftKings heads into its Q2 earnings report with momentum and high expectations, but also under the microscope for its ability to balance rapid growth with profitability. Tonight’s numbers should confirm another quarter of double-digit revenue expansion and margin improvement, yet the real test lies in the company’s forward guidance. If management signals that tax pressures and customer acquisition costs are manageable while reaffirming its $6.2 billion to $6.4 billion revenue target and $800 million to $900 million EBITDA range, investors may remain confident heading into the NFL season. Conversely, any sign of caution could test the stock’s recent gains, especially given its technical stretch above the market.

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