DraftKings (DKNG): Handle +15%, Revenue -5% - The $251M Hold-Rate Gap

DraftKings Inc. (DKNG) Q2 2026 — Q2 revenue $1,443.2M, -4.6% YoY, vs a $1,512.0M consensus - a 4.5% MISS. Adjusted EPS $0.09 vs a $0.02 non-GAAP bar (a BEAT); GAAP EPS $(0.14). Adjusted EBITDA $114.6M, -61.9%. Sports Consumer Volume $13.14B, +14.5%. FY26 guidance REITERATED at $6.5-6.9B revenue and $700-900M adjusted EBITDA. AMC print, so the $22.17 close is PRE-print; the stock traded about 4% lower after hours. DraftKings missed on revenue and the tape hated it - but the customers never left. Sports Consumer Volume hit a record $13.14B, up 14.5%, and monthly unique payers rose 9% to 3.6 million. The entire miss is 191 basis points of hold: the sports net revenue margin fell from 8.70% to 6.79%. Apply last year's hold to this year's volume and revenue would have been $1,694M - up 12% and a 12% BEAT. Full arithmetic below. THE CALL: BUY (3/5, THE MISS IS 191 BASIS POINTS OF HOLD, AND THE PRICE ALREADY ASSUMES IT IS PERMANENT) — base-case value ~$32.0 vs ~$22.17 today. KEY METRICS: - CALL: BUY 3/5, base case fair value ~$32 vs the $22.17 pre-print close (+43%). Bull $51, base $32, bear $12 - a genuinely two-sided stock and we say so. Street: 48 analysts, 35 Buy / 9 Hold / 4 Sell, consensus Buy, $35.40 average target (low $26.40, high $49, +60%). We ALIGN on direction and stay more CAUTIOUS on the number. - THE PRINT: revenue $1,443,235K vs $1,512,507K (-4.6%) against a $1,512.0M bar = a 4.5% MISS. Adjusted diluted EPS $0.09 vs $0.38; the $0.02 Street bar is NON-GAAP, so $0.09 vs $0.02 is the comparable pair and it is a BEAT. GAAP diluted EPS $(0.14) vs $0.30. Adjusted EBITDA $114.6M vs $300.6M, -61.9%. Loss from operations $(68.2)M vs $150.6M. - THE $251M HOLD-RATE GAP: Sports Consumer Volume $13,140.4M vs $11,474.8M (+14.5%, a record). Sports revenue $891.9M vs $997.9M (-10.6%). Sports net revenue margin 6.79% vs 8.70% = -191bp. At last year's margin that volume produces $1,143M of sports revenue, so 191bp cost $251M. Add it back: revenue $1,694M, +12.0% YoY and a 12.0% BEAT. - THE EBITDA BRIDGE (ties exactly): adjusted EBITDA -$186.0M. Revenue -$69.3M, cost of revenue +$37.2M, sales and marketing +$89.3M (+38.3%, now 22.3% of revenue vs 15.4%), product and technology +$19.2M, G&A +$3.7M = a -$218.8M operating swing; add back D&A +$15.0M, SBC -$2.1M and a NEW advocacy add-back +$19.9M = -$186.0M. - THE NEW ADD-BACK: 'advocacy and other related legal expenses' was $19.9M in Q2 and $46.2M in H1 2026 against ZERO in both 2025 periods - lobbying to legalise iGaming and back a sportsbook ballot measure. Strip it out and adjusted EBITDA is $94.7M, not $114.6M: 17% of the quarter's adjusted profit is an add-back that did not exist a year ago. - THE GUIDE: FY26 revenue $6.5-6.9B and adjusted EBITDA $700-900M, REITERATED. H1 revenue $3,089.3M, so H2 must be $3,411-3,811M vs $3,133.2M last year (+8.9% to +21.6%). H1 adjusted EBITDA $282.5M (-30% YoY), so H2 must be $418-618M vs $216.7M - 1.9x to 2.8x, a 63% incremental margin at the midpoint. CFO named a ~$1B 'core' EBITDA: a $100-300M Predictions drag. - CASH + VALUATION: H1 CFO $63.0M includes a -$94.7M player-float swing; ex float, CFO $157.7M less $88.7M capex = +$69.0M clean FCF (-$25.7M as reported) while buying back $154.2M of stock. Liabilities to users $840.3M vs $395.0M reserved = a $445M unreserved float. Net debt $851M, EV $11.85B = 1.77x guided revenue, 14.8x guided EBITDA (15.4x with the float). What to watch: UP: sports net revenue margin back above 7.5% in Q3, DraftKings disclosing Predictions volume and revenue separately, or NFL-season handle growth off the nationwide Super App. BEAR: marketing above 25% of revenue, an FY26 adjusted EBITDA guide cut below $700M, a blended take rate under 6%, or another state raising its gaming tax. Next read: Q3 2026, early November. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.