Prediction markets surged in 2025, with trading volumes reaching $63.5 billion, a fourfold increase from $15.8 billion in 2024. Platforms like Polymarket and Kalshi drove this growth, enabling bets on outcomes across politics, sports, economics, and more.
Is there a cause-and-effect relationship between the flourishing of prediction markets and the kneecapping of the stocks traditional online betting sites like DraftKings (NASDAQ:DKNG | DKNG Price Prediction) and Flutter Entertainment (NASDAQ:FLUT) have suffered in the past 12 months?
Both sites have lost more than half their value in the last year, and DraftKings’ fourth-quarter earnings may give us clues.
DraftKings’ Q4 Revenue Hits Record Despite Estimate Miss
DraftKings reported fourth-quarter 2025 revenue of $1.989 billion, up 43% from $1.393 billion in the prior year. This marked a quarterly record, driven by strong sportsbook handle growth to $54 billion for the full year, an 11% increase. However, the revenue growth slightly missed the $1.990 billion consensus estimate, contributing to a 13% drop in the stock in noon trading today.
The number of monthly unique payers remained stable at 4.8 million, demonstrating consistent user engagement, while the average revenue per monthly unique payer climbed 43% to $139, underscoring the company’s ability to monetize its user base more effectively.
Adjusted EBITDA reached $343 million, four times the prior-year level, with margins expanding over 1,000 basis points to 17%. Net income turned positive at $136.4 million, reversing a $134.9 million loss, with diluted EPS at $0.25. Adjusted earnings were $0.36 per share, below the $0.50 estimate but up from $0.14 a year ago. For full-year 2025, revenue exceeded $6 billion, up 27%, and adjusted EBITDA topped $600 million, more than tripling the prior year.
These results illustrate the company’s resilience and strategic focus on scaling operations in a maturing market, even as it navigates regulatory hurdles and intensifying competition from its peers.
Guidance Signals Caution Amid Prediction Market Push
Looking ahead, DraftKings’ guidance for 2026 anticipates revenue between $6.5 billion and $6.9 billion, alongside adjusted EBITDA ranging from $700 million to $900 million. This projection, while positive, has sparked investor disappointment due to its implication of decelerating growth relative to the 27% revenue expansion seen in 2025.
A key detail is that this outlook deliberately excludes any revenue contributions from DraftKings Predictions, the company’s innovative new product focused on event-contract trading. This exclusion adds an element of uncertainty, as it suggests management is adopting a conservative stance while ramping up this emerging segment.
Management stated that rival prediction markets had only a slight impact on January sportsbook handle, mainly affecting low-margin customers. CEO Jason Robins noted that introducing DraftKings Predictions did not cause any material cannibalization, and there was no broad impact on the sportsbook from external platforms.
He further estimated that the broader prediction market category could expand to a staggering $10 billion, offering DraftKings a prime chance to capture a significant share through its established infrastructure and user loyalty programs.
Sports Betting Is Thriving and Expanding
Sports betting, though, remains DraftKings’ core, with $2.5 trillion in total potential payouts across open wagers in 2025, largely attributable to the popularity of parlay betting. This format, which allows users to combine multiple bets for higher potential returns, has become a cornerstone of user engagement and revenue generation. The company operates in 26 states for online sports betting but reaches 38 states with Predictions, including non-sportsbook markets like California and Texas.
Customer acquisition and retention also improved, with plans to deploy growth capital for Predictions to attract millions more users. These initiatives not only broaden the product portfolio but also leverage DraftKings’ data analytics and user personalization tools to foster long-term loyalty. They posiiton the company for sustained dominance in an evolving industry.
Key Takeaway
Prediction markets do not appear to be the primary cause of DraftKings’ stock decline, as management says there has only been a minimal impact on its sportsbook and no significant cannibalization by its own offering.
However, the company’s heavy investment in DraftKings Predictions — including diverting advertising dollars to the space from other areas — indicates management views inaction as a risk. Fortunately, prediction markets align closely with DraftKings’ expertise in betting, and its brand recognition could allow it to take market share from leaders like Polymarket and Kalshi. DraftKings’ household name and vast user data may also provide a defensive moat.
Considering the robust 2025 performance, ambitious growth strategies, and attractive valuation multiples relative to peers, DraftKings presents a compelling buy opportunity at current levels, especially for investors bullish on the convergence of betting and predictive trading.
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