Short-seller research outlet The Bear Cave published its latest report on DraftKings Inc. (NASDAQ:DKNG) Thursday, arguing that prediction markets are pulling users away from traditional sportsbooks and that the risk is not priced into the stock.
- DraftKings stock is showing downward pressure. What’s ahead for DKNG stock?
The Bear Cave Bites Down on DraftKings
The Bear Cave, which is now owned by Hunterbrook Media, noted that DraftKings shares have fallen roughly 40% since its first report on the company, and that the bear case is even stronger now, citing the competitive threat of prediction markets.
“The Bear Cave believes that Kalshi’s growth will ultimately come at the expense of DraftKings, first slowly, then rapidly,” the report states.
DraftKings did not immediately respond to Benzinga’s request for comment. Hunterbrook Media’s investment affiliate, Hunterbrook Capital, said it does not have any market position related to the report at the time of publication.
The Bear Cave points to Kalshi’s scale as evidence, citing Dune data showing the prediction market platform has surpassed $100 billion in cumulative volume and is running roughly $10 billion in weekly notional volume. Although investors believe prediction market risk is priced into the stock given it’s recent decline, The Bear Cave said it “strongly disagrees.”
The Bear Cave also cited a July 6 Apptopia report that found daily active users at DraftKings, FanDuel, BetMGM and Caesars peaked June 15 during the World Cup before fading 32% to 41% by month-end, while Kalshi and Polymarket kept climbing. According to that data, the share of DraftKings users who also opened Kalshi rose from 12% on June 1 to 17.4% on June 22, while the share of Kalshi users opening the sportsbook apps declined over the same stretch.
The report argues that traffic is moving in one direction because prediction markets offer a better product and better distribution, adding that consumers are “voting with their fingertips.”
The Bear Cave compared World Cup winner markets on both platforms, saying a $100 position on Spain returned $167.48 on Kalshi versus $166 on DraftKings Predictions, with similar gaps on England and Argentina. The newsletter also noted DraftKings Predictions users cannot place limit orders.
DraftKings said last month that its predictions product was growing rapidly, reporting roughly $11.3 billion in annualized trading volume for the week ended June 21, representing about $217 million for the week. The Bear Cave called that performance “comparatively sluggish” given a recent DraftKings trading promotion offering new users $200 “prediction dollars” after making their first trade of $5 or more.
Competition in the category is expanding. The Bear Cave cited a CoinDesk report that Kalshi did $31 billion in notional volume in June, up more than 70% from May, with sports contracts making up about 85% of activity. Polymarket’s international exchange set a monthly record at $10.8 billion, and Rothera — a Robinhood Markets Inc. and Susquehanna International Group joint venture that launched in June — processed $2 billion in its first month.
Kalshi was reportedly seeking funding at a $40 billion valuation last month, up from $22 billion in May, according to the Financial Times.
The Bear Cave argued regulatory risk cuts into the industry’s favor, citing President Donald Trump’s recent Truth Social post saying the CFTC’s exclusive authority over prediction markets must be maintained.
Not everyone shares the view. Morningstar has said it sees prediction markets as more opportunity than risk for DraftKings, and TD Cowen raised its price target on the stock to $35 from $30 last week, while JPMorgan maintained an Overweight on Wednesday and lifted its target to $34 from $31.
DKNG Shares Move Lower
DKNG Price Action: DraftKings shares were down 1.27% at $24.94 at the time of publication on Thursday, according to Benzinga Pro.
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