DKNG Update: When Setups Don’t Play Out
Our bullish reversal call didn’t play out. Here’s exactly what happened, what changed, and what we learned.
What Happened: The Setup Broke Down
We highlighted DraftKings (DKNG) as a potential bullish reversal setup when the stock was trading at $31.32, just above the 52-week low of $29.64. Our analysis was straightforward: massive capitulation, nearly unanimous analyst support, Cathie Wood accumulating aggressively, and an earnings catalyst that we expected would trigger a reversal.
The setup completely broke down.
Not just a minor invalidation—the stock made new lows, earnings missed across the board, and the entire technical and fundamental picture deteriorated. When setups don’t play out as expected, we explain what happened so everyone can learn from it.
Current Status (November 6, 2025):
- Price: $27.92 at close, trading at $25.37 in after-hours (down another 9.3%)
- Total decline from entry: Down 11% to close, approximately 19% including after-hours movement
- NEW 52-week low: $27.89 at close, potentially breaking lower to $25.37 in extended trading
- Decline from peak: -48% at close, approximately -53% including after-hours (from $53.61 high)
- Market reaction: Severe selling pressure after-hours following the earnings miss and guidance cut
- Stop loss level: Our original analysis mentioned a stop around $28.50, which would have been triggered, limiting losses to approximately 9% and avoiding the after-hours carnage
The Q3 Earnings: What We Expected vs. What We Got
We positioned this as an earnings catalyst play, expecting DraftKings to deliver a solid beat that would confirm the turnaround and trigger the reversal. Instead, Q3 earnings (reported November 6, 2025) came in significantly below expectations across the board.
The Numbers (All Misses):
Revenue:
- Reported: $1.14 billion
- Expected: $1.21 billion
- Result: 5.6% MISS (growth slowed to just 4% YoY)
Adjusted EBITDA:
- Reported: -$126.5 million
- Expected: -$68.74 million
- Result: 84% MISS (losses nearly doubled vs expectations)
Full-Year Guidance SLASHED:
- Revenue: Lowered from $6.2-6.4B to $5.9-6.1B (4.8% decrease)
- EBITDA: Midpoint of $500M vs analyst expectations of $746.3M
User Growth Stagnant:
- Monthly Unique Payers: 3.6 million (FLAT year-over-year)
- No customer growth despite massive marketing spend
Net Loss: $256.8 million in Q3
What Went Wrong:
CEO Jason Robins said he’s “the most bullish I have ever felt about our future.” The market vehemently disagreed, with the stock plunging in after-hours trading to $25.37 (down an additional 9.3% from the close). The severe disconnect between management’s optimism and the market’s violent reaction highlights just how significant the fundamental issues are.
The core problems:
- Customer-Friendly Sports Outcomes: When bettors win more than expected (which happened in Q3), the sportsbook loses. This is the volatility risk Wall Street hates.
- iGaming Underperformance: Despite 24.9% iGaming revenue growth, it’s not enough to offset sportsbook weakness.
- No User Growth: 3.6M monthly payers is flat YoY. That’s a growth company with no growth.
- Margin Compression: Adjusted EBITDA margins of -11.1% vs expectations of -5.7%. The path to profitability is getting longer, not shorter.
- Guidance Cut: The 4.8% reduction in full-year revenue guidance signals management doesn’t see improvement in Q4.
What Changed: The Setup Started Breaking Down Before Earnings
In fairness to our original thesis, some critical new information emerged in the days leading up to earnings that wasn’t available when we made the initial call:
Bank of America Downgrade (November 4, 2025)
Two days before earnings, BofA analyst Shaun Kelley downgraded DKNG from Buy to Neutral and slashed the price target from $48 to $35 (now just 25% upside vs the 62% upside analysts were calling for in the original thesis).
BofA’s Concerns:
- Unfavorable sports outcomes raising questions about earnings volatility
- iGaming underperformance vs competitors
- State-level tax headwinds (multiple states considering higher tax rates on operators)
- Prediction markets (Kalshi, Polymarket) as a near-term competitive threat
BMO Capital Also Cut Targets
BMO lowered its price target from $65 to $63, citing unfavorable September sports results.
The Technical Breakdown
The stock broke below the $29.64 support level that was identified as the “floor” for the reversal setup. The new 52-week low at $27.89 confirms this was a failed reversal pattern, not a bottom.
Key Technical Levels:
- $31.32: Price level when we highlighted the setup
- $29.64: Original 52-week low support (broken)
- $28.50: Stop loss level mentioned in our original analysis (would have been triggered)
- $27.89: NEW 52-week low (established November 2025)
When a stock makes new lows AFTER a potential reversal setup, it’s a bear flag continuation pattern, not a bullish reversal. The $28.50 stop loss would have limited the damage before the full breakdown occurred—a reminder of why risk parameters matter even in high-conviction setups.
The Analyst Picture: How Quickly Consensus Can Shift
Our original thesis noted that 29 out of 30 analysts had Strong Buy ratings with an average price target of $50.80. This was accurate at the time and represented a legitimate bullish signal.
What’s changing in real-time:
- BofA: Downgraded to Neutral with $35 target (from $48)
- Bernstein: Cut target from $55 to $50
- Stifel: Cut target from $51 to $50
- BMO: Cut target from $65 to $63
This is a reminder that consensus can shift rapidly when fundamentals deteriorate. The analysts who had $50+ targets a few weeks ago are now adjusting based on the same earnings data we’re seeing.
Notable Institutional Activity: The Cathie Wood Factor
The original analysis highlighted Cathie Wood’s ARK buying 768,500 shares in two days as a bullish contrarian signal. This was a legitimate data point—when a high-profile fund manager accumulates that aggressively, it typically suggests conviction.
What this situation demonstrates: While notable fund manager moves are worth tracking, they can be wrong on timing and on individual names, as ARK’s recent track record shows. Fund activity is valuable as a supporting data point, but shouldn’t override fundamental analysis.
For future analysis: Significant fund manager activity will continue to be tracked and noted, but treated as confirming evidence rather than primary evidence for setups.
Key Lessons From This Setup
When a setup doesn’t work out, the real value comes from extracting lessons that can be applied to future analysis.
1. Technical Oversold Signals Need Fundamental Confirmation
The original analysis relied on strong technical signals (RSI below 30, near 52-week lows, notable institutional buying). These were legitimate signals, but the deteriorating fundamental trends proved more powerful.
The lesson: When growth is slowing (4% in Q3 vs 37% in previous quarters) and user growth is flattening, technical oversold readings can persist much longer than expected. The stock wasn’t “too cheap”—it was being re-priced for a new growth trajectory.
2. Earnings Catalysts Are Binary Events—Risk Parameters Matter
The setup was positioned as an earnings catalyst play, with the expectation that a beat would trigger the reversal. The binary nature of this risk warranted conservative positioning.
Earnings could have gone either way, and the outcome moved decisively against the bullish case. That said, the original analysis did include a stop loss around $28.50, which would have limited losses to approximately 9%—demonstrating that proper risk management is crucial regardless of the directional outcome.
The lesson: When a setup hinges on a specific catalyst (especially earnings), it’s inherently a binary event. Risk parameters (stops, position sizing) become even more critical in these situations.
3. Market Consensus Can Shift Rapidly—Monitor Fundamental Trends
At the time of our original analysis, 29 out of 30 analysts had Buy/Strong Buy ratings, representing strong Wall Street support for the stock. However, consensus shifted quickly—BofA downgraded just two days before earnings, and multiple firms cut targets immediately after.
The lesson: Analyst consensus is a useful data point, but it can lag real-time fundamental trends. The analyst community was slow to recognize the growth slowdown, and by the time ratings adjusted, the price action had already moved.
The Bull Case That Remains (If You’re Still Optimistic)
Despite the carnage, there ARE still some positives:
1. ESPN Partnership
On November 6 (the same day as earnings), Disney/ESPN announced that DraftKings is now the official sportsbook for ESPN, replacing Penn Entertainment.
This is a massive brand distribution win and gives DKNG access to ESPN’s massive audience during NFL seasonality peaks.
The catch: The market doesn’t care about partnerships when revenue is missing and guidance is being cut. This is a 2026+ story, not a Q4 2025 catalyst.
2. $2 Billion Buyback Authorization
DKNG increased its share repurchase program from $1 billion to $2 billion, signaling management’s confidence.
The catch: Buybacks don’t matter when the stock is in free fall. If management starts buying at $28 and the stock falls to $22, they just destroyed shareholder value.
3. Railbird Acquisition (Prediction Markets)
On October 21, DKNG acquired Railbird to enter the prediction markets space (competing with Polymarket/Kalshi).
The catch: This is a “if you can’t beat them, join them” move. The fact that DKNG had to acquire their way into prediction markets shows they’re playing defense, not offense.
4. Long-Term Market Opportunity
The North American sports betting and iGaming market is projected to reach $50 billion by 2028. DKNG is the #2 operator behind Flutter/FanDuel.
The catch: Market opportunity doesn’t matter if the company can’t monetize it profitably. Customer acquisition costs are too high, churn is too high, and margins are compressing.
Position Management Considerations
Here’s how traders might think about DKNG going forward, both for those who entered based on our original analysis and those watching from the sidelines.
For Traders Who Entered Around $31.32:
Current drawdown: approximately 11% to the close, or roughly 19% including after-hours movement to $25.37. However, our original analysis mentioned a stop loss around $28.50, which would have been triggered and limited losses to roughly 9%, avoiding the severe after-hours decline. This demonstrates the critical importance of defined risk parameters—proper risk management can be the difference between a manageable loss and a devastating one.
The after-hours plunge of 9.3% following earnings shows extreme selling pressure and strongly suggests further downside may be ahead when regular trading resumes.
Here are considerations for different position management approaches:
Option 1: Cut the Loss (Conservative Approach)
The setup has been invalidated. The stock made new 52-week lows, earnings missed significantly, guidance was slashed, and analysts are downgrading. For traders who followed the $28.50 stop loss mentioned in the original analysis, losses would have been limited to approximately 9%.
Stop Loss Consideration: The break below $29.64 was the technical invalidation point, though the $28.50 level would have provided an earlier exit and better risk management.
Rationale: Risk/reward has shifted dramatically. The upside to the new analyst average of $40-50 represents 43-79%, but the downside to $20-22 (which is possible if fundamentals continue deteriorating) is another 20-30%. The asymmetry that existed at $31.32 is no longer present.
Option 2: Average Down (Higher Risk)
For traders who believe in the long-term (2026+) story, averaging down around current levels ($25-27 based on where the stock opens after the severe after-hours decline) with a hard stop at $22-23 could lower the cost basis.
Why this is extremely risky: This approach doubles down on a thesis that has already been severely invalidated. The 9.3% after-hours plunge suggests the market sees fundamental problems that may take quarters to resolve. While the ESPN partnership and $2B buyback are positive developments, the fundamentals show decelerating growth and dramatically widening losses.
Option 3: Partial Exit (Balanced Approach)
Some traders may choose to exit 50% of the position to lock in losses around current levels (limiting damage to ~10-15% on that portion), while holding the remaining 50% with a tight stop at $22-23. This provides minimal exposure if the ESPN partnership eventually drives a 2026 recovery, while significantly limiting downside risk. Given the severity of the after-hours decline, this approach allows for some flexibility without excessive exposure to further deterioration.
For Traders Watching from the Sidelines:
Consider waiting for confirmation signals:
- Q4 earnings (February 2026) that show growth is re-accelerating
- The stock establishes a clear base around $22-25 (after the severe after-hours decline) and stops making new lows
- Analyst sentiment stabilizes (no more downgrades)
- User growth returns (monthly unique payers need to be growing, not flat)
The trade-off: Waiting means potentially missing a 10-20% bounce if sentiment shifts quickly. However, given the 9.3% after-hours plunge, it also avoids catching a falling knife if the stock falls another 20-30% toward the $20-22 bear case target.
A more conservative entry approach: Wait for a higher low to form. Let the stock potentially bottom around $22-24, bounce to $28-30, pull back to $25-26 (a higher low than $22), and then consider entry with a stop below that higher low. This confirms the reversal rather than trying to predict it. The violent after-hours reaction suggests patience will likely be rewarded.
Summary: Key Takeaways From This Setup
When setups don’t play out, the lessons are invaluable:
1. Oversold ≠ Bottomed
Technical indicators showing “oversold” conditions (RSI below 30, near 52-week lows) are useful signals, but they need fundamental support. When growth is decelerating, oversold conditions can persist much longer than expected.
2. Recent Trends Matter More Than Historical Performance
The analysis focused on strong prior-quarter numbers (37% revenue growth, doubled EBITDA), but the Q3 deceleration to 4% growth signaled a shift in the business trajectory that proved more important than past performance.
3. Catalyst Plays Require Conservative Sizing
When a setup depends on a binary catalyst (like earnings), position sizing should reflect that uncertainty. The inclusion of the $28.50 stop loss was appropriate risk management for this type of play.
4. Analyst Consensus Can Shift Rapidly
Strong analyst support (29/30 Buy ratings) was a legitimate signal, but consensus can shift quickly when fundamentals change. It’s a useful data point, not a thesis foundation.
5. Flexibility Is Essential
When new information emerges (downgrades, technical breakdowns, fundamental deterioration), reassessing the setup is critical rather than staying anchored to the original view.
Updated Price Targets
Bear Case ($20-22):
If user growth remains flat and losses continue to widen, DKNG could trade down to 8-10x forward sales (currently ~2.4x sales). This would imply $20-22 per share. The severe after-hours decline to $25.37 (down 9.3%) suggests the market is aggressively moving in this direction, with the $20-22 range now looking increasingly likely in the near term.
Probability: 40-45%
Base Case ($28-35):
Stock consolidates around current levels, establishes a base, and slowly grinds higher as the ESPN partnership and 2026 repricing initiatives take hold. However, the severe after-hours weakness to $25.37 suggests this consolidation will likely need to occur at significantly lower levels first, potentially in the $24-26 range.
Probability: 40-45%
Bull Case ($40-50):
User growth returns in Q4/Q1, margins stabilize, and the ESPN partnership drives a re-rating. Analysts raise targets back to $50+. The violent after-hours reaction (down 9.3%) suggests this scenario has become significantly less likely in the near term, as it would require a major fundamental reversal.
Probability: 10-15%
The Bottom Line: What Happened and Why
The bullish reversal setup on DKNG at $31.32 didn’t work out. The stock broke to new 52-week lows at $27.89, Q3 earnings missed badly, guidance was cut, and the technical pattern failed.
The setup breakdown came down to a few key factors:
The signals highlighted—technical oversold conditions, analyst support, Cathie Wood accumulation—were legitimate at the time. However, the fundamental deterioration (slowing growth, flat user additions, widening losses) proved more significant than the technical setup suggested, and the earnings catalyst moved against the bullish case rather than confirming it.
What changes going forward:
- Requiring more fundamental stabilization before highlighting reversal setups in growth stocks
- Emphasizing the binary nature of catalyst-driven plays
- Weighting recent fundamental trends more heavily relative to consensus opinion
- Continuing to include defined risk parameters (as the $28.50 stop did in this case)
The key insight: Not every oversold stock at 52-week lows represents a reversal opportunity. When fundamental trends are deteriorating—especially in growth stocks—technical oversold signals can persist far longer than expected. The market was re-pricing DKNG’s growth trajectory, not creating a bottom.
This is the reality of markets. Not every setup works out. What matters is understanding what happened, extracting lessons, and improving the analytical framework going forward.
Action Items for Traders
- Review any existing positions: Traders holding DKNG should urgently reassess their positions given the severe 9.3% after-hours decline to $25.37
- Monitor tomorrow’s open: The after-hours plunge suggests significant downside pressure will continue when regular trading resumes on November 7
- Set price alerts: Consider alerts at $24 (major support level, now very close), $20 (bear case target), and $32 (resistance)
- Monitor Q4 earnings: February 2026 earnings will be the true test of whether this is a temporary slowdown or structural issue
- Watch analyst actions: If downgrades accelerate following today’s results, it may signal staying on the sidelines is prudent
- Track user growth: Monthly unique payers must start growing again for any bullish case to work
- Listen to the earnings call: Management’s commentary on Friday morning (November 7) may provide additional context on the severe market reaction
Disclaimer: This analysis represents our current assessment of DKNG and considerations for traders managing positions. This is educational content and market analysis, not financial advice or a recommendation to buy or sell securities. We share our analysis transparently, including when setups don’t work out as expected, so readers can learn from real-world market dynamics. Always conduct your own due diligence, manage risk according to your own tolerance levels, and consult with a financial advisor before making investment decisions.
This is an update to our original DKNG bullish reversal analysis. The setup didn’t play out as expected. The goal of this update is transparency and education—analyzing what happened and extracting lessons for future setups.