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Short position causes DraftKings share fall

Jenn Clarke
Jenn ClarkeJuly 23, 2021
Short position causes DraftKings share fall
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DraftKings is one of the largest and most successful online betting sites operating in the US and the company suffered from a huge fall in stock prices recently. After Hindenburg Research released a report that the sportsbook software provider, SBTech, is operating in illegal countries, share prices plummeted as much as 14%. The report states that SBTech is currently operating in countries where online sports betting is banned and more than half of the company’s revenue is generated from these countries.

Reports Based on Regulatory Findings

The latest Hindenburg report that was released was based largely on information from former employees as well as an assessment of international gaming websites that are operating illegally. The report makes a strong claim that SBTech poses a risk to DraftKings. More than 25% of SBTech’s sales are generated by DraftKings.

Unfortunately, researchers have not been able to verify any of the information from the report. The CEO of DraftKings stated publicly that SBTech does not operate in any restricted markets and a thorough review of all business practices was conducted.
Hindenburg is a firm that often published financial research on leading companies and will bet against any company they deem to be overvalued.

In the past three months, DraftKings shares have been down approximately 30% and this recent report caused yet another drop.

Experts at Hindenburg state they believe that DraftKings has skirted laws to take steps to hide any black market operations from investors. This statement alone caused many shareholders to sell as prices started to drop immediately after the report was released.

What This Means for DraftKings Investors

After the report was released, Hindenburg then called for SBTech to undergo a third-party audit to look closer at income streams. DraftKings responded immediately to the release and assured shareholders that the company SBTech operates legally and the report will have little to no effect on the share prices. Even after the immediate fall of prices, DraftKings has already enjoyed an upswing as shareholders do their own research and learn the truth behind allegations.

Many investors have dismissed the report as being fake news and continue to hold their investment in DraftKings. The bullish investors on Wall Street continue to show an interest in the stock even after the report was released and many believe the shares are actually undervalued and could possibly hit a high of $195 per share in the coming 3 to 4 years.
DraftKings already recovered after the report was released in June 2021 and the average target price is now at $68.46, which is 40% above the current price. Of 27 analysts that have studied the DraftKings market, 21 recommend buying shares now.

DraftKings Hopeful of US Market Expansion

When online sports betting and online casino became legal in the US, one of the first operators to enter the industry was DraftKings. Now, the site operates in more than 14 states and has over 1.5 million customers. With the US betting industry still growing, the company plans to enter more states as local betting laws are amended and implemented. If the company is able to enter more states while maintaining a 20-30% market share, it has the potential to gross between $2.9 and $4.3 billion a year.

Since entering the industry, there have been huge increases in share prices. In 2020, shares soared past 330%, though the stock has had some struggles this year. However, investors are confident prices will be on an upswing and as the company expands into other states, there is only room for growth. First quarter earnings in 2021 have already beat expectations. However, despite an increase in revenue, shares are still down at the start of this second quarter.

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Author Jenn Clarke

Jenn began an exciting journey in the iGaming industry more than 10 years ago as a content writer for various online affiliate sites, among these CasinoVibez. With a growing passion for gaming and an interest in the legal lands... Read more about the author

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