DraftKings Shares Underperform amid Insider Selling

DraftKings Inc. had a tough December, with its shares falling 10.62% over the last month. This underperformance contrasts the broader market, with the Consumer Discretionary sector down just 0.11% and the S&P 500 Index up 0.4%. Retail investors are also unhappy due to 2024’s significant insider stock selling, which did not help DraftKinds’ shares.

DraftKings Executives Exclusively Sold Shares

The recent downturn in DraftKings’ stock coincides with significant insider selling. DraftKings director Paul Liberman sold $20.4 million in stock in December. Similarly, chief legal officer R. Stanton Dodge sold 228.5K shares worth $9.77 million. MarketBeat data revealed that these decisions followed a year of continuous insider selling, where insiders sold $205.54 million worth of stock in 2024.

A breakdown of insider selling reveals a declining trend over the quarters, from $66 million in Q1 to $34 million in Q4. Even with this slowing pace, retail investors are still cautious because none of the 20 insider transactions reported for DraftKings in 2024 were stock purchases. Furthermore, DraftKings’ annual return of 5.53% falls significantly behind the stellar performances of its peers.

Flutter Entertainment, DraftKings’ chief rival and the parent company of FanDuel, has seen its shares surge 44.39% in 2024. Adding to the disparity, Flutter insiders have refrained from selling shares in recent months, demonstrating a confidence that contrasts with DraftKings’ executive activity and hints at the different strategies of these two management teams.

The Company Still Enjoys Significant Momentum

DraftKings is set to disclose its full fiscal year earnings soon, with analysts forecasting earnings per share (EPS) at  -$0.79, a 54.34% improvement from 2023. Experts also expect $4.91 billion in revenue, up 33.95% year-on-year. While these projections indicate growth, they have not offset retail investor concerns about the company’s financial position and continued insider sell-offs.

Barry Jonas of Truist Securities was nevertheless optimistic regarding DraftKings’ prospects in 2025 and beyond, citing the company’s advanced technology and robust customer acquisition trends as significant growth drivers. However, he was relatively conservative regarding his cash flow estimations, predicting $380 million in 2024, slightly below Wall Street’s estimated $395 million.

DraftKings faces an uphill battle as it seeks to regain investor confidence. The combination of insider selling, underwhelming stock performance, and formidable competition from Flutter casts a shadow over its recent achievements. However, DraftKings still has several ways to remedy these issues. The company can encourage insider buying, demonstrate robust financials, and strengthen its position against rising competition.