Investors were not likely betting that DraftKings (NASDAQ: DKNG) would be up over 10% two days after the company delivered a mixed Q2 2026 earnings report. Revenue of $1.44 billion missed expectations of $1.51 billion, but adjusted earnings per share (EPS) of nine cents beat the two cents per share that analysts had forecasted.
GAAP diluted EPS came in at –14 cents, meaning the company swung to a net loss. But the gap between the two is almost entirely non-cash: DraftKings' own reconciliation shows 17 cents per share added back for stock-based compensation and eight cents for amortization of acquired intangibles, partially offset by a five-cent tax impact. Strip those out, and the adjusted profitability picture is a beat, not a miss.
However, the numbers were down year over year (YOY). In Q2 2025, the company reported $1.51 billion in revenue and adjusted EPS of 30 cents per share. DraftKings' revenue is uneven depending on the calendar, but this was a departure from its previous trend of higher YOY numbers.
Sports Betting Volume Rises as DraftKings Margins Shrink
DraftKings used the quarter to make a case for where its business is headed next, an expansion into the Predictions market. Investors appear to be buying that case even as DraftKings posted a 62% year-over-year collapse in adjusted EBITDA, down to $114.60 million from $300.60 million a year ago. The company's earnings report shows the underlying business held up better than the profit-and-loss numbers suggest.
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Sports Consumer Volume climbed nearly 15% YOY to $13.1 billion.
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Unique customers stayed essentially flat at 10.5 million.
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iGaming revenue grew to $462 million from $423 million.
None of those points to a demand problem. What changed is the margin.
Sports revenue fell to $892 million from $998 million even as volume rose, pushing net revenue margin down from 8.7% to 6.8%. That gap between rising volume and falling revenue is the real story. DraftKings is spending to build out its Predictions business, and that spending is compressing margin across the board.
Management said as much in the report. The core Sportsbook and iGaming business is on track to generate roughly $1 billion in adjusted EBITDA for fiscal 2026 on its own. DraftKings guidance range is $700 million to $900 million, meaning its Predictions investment is the entire explanation for the gap between what the core business can produce and what DraftKings expects to report.
DraftKings Shifts From Defending Predictions to Chasing Market Share
One detail from the earnings materials explains this shift. Specifically, a slide that appeared in the Q1 deck is missing entirely from the Q2 deck.
In Q1, DraftKings devoted a page noting that Predictions represented an "incremental opportunity" rather than a threat to Sportsbook revenue, citing data showing that 98% of sports betting volume in competitive states still went through regulated sportsbooks. In contrast, 69% of Predictions volume came from states with no sportsbook option at all.
In its place in Q2 is a page laying out a three-stage "vertical integration playbook." That means the same framework DraftKings credits with building its top-ranked Sportsbook now applies to Predictions and is centered on a single goal: winning. The Q2 report explicitly states the company is "confident we can win Sports Predictions this NFL season and beyond."
The shift is subtle but revealing. In Q1, DraftKings reassured investors that Predictions wouldn't cannibalize the existing business. By Q2, with margins already under pressure and the NFL season approaching, the company stopped playing defense and started talking about market share. It's a bet that investors would rather hear a growth story than a hedge, and Tuesday's rally suggests that bet is paying off, at least for now.
DKNG Stock Faces a Key Technical Test at the 50-Day SMA
DKNG is now close to its 50-day simple moving average (SMA), a level the stock has traded below since briefly reclaiming it in June. The longer-term chart shows DKNG fell hard from the high $40s last September into the low $20s by February. It’s spent the last six months trading sideways in a range between $20 to $28.
The MACD indicator backs up the bullish tone. The MACD line has crossed above its signal line, and the histogram is narrowing toward positive territory after months spent underwater. However, that's typically an early signal of shifting momentum, not proof of a trend reversal.
A confirmed close above the 50-day SMA, ideally on continued volume, would go a long way toward validating the bounce. A rejection at that line would suggest traders are fading the earnings rally rather than embracing it.
What Investors Should Watch After DraftKings Earnings
With DKNG testing a key technical level, that's worth closely watching in future quarters. The DraftKings analyst forecasts on MarketBeat show a consensus price target of $34.08, which has been relatively consistent for the last several quarters. Since the report, analyst sentiment has been generally positive.
The Predictions ramp is real and accelerating. Annualized volume traded in the segment jumped from $2.3 billion in April to $11 billion in July, a fivefold increase heading into football season, the company's biggest seasonal catalyst. If that growth continues to convert into customers and revenue once NFL volume kicks in, the margin pressure investors are absorbing now could look like a worthwhile trade-off in hindsight.
The risk is that DraftKings is spending aggressively in a market where the competitive and regulatory landscape for sports prediction markets is still being sorted out. The company pulled its most reassuring cannibalization data from this quarter's deck, even as it's asking investors to trust a more aggressive framing.
The article "DraftKings’ Predictions Push Could Be the Bet That Matters Most" first appeared on MarketBeat.
