DraftKings Stock Lost 12.3% Last Month. Could Thursday's Earnings Help Turn Things Around?

October was a scary month indeed for DraftKings (NASDAQ: DKNG) as shares of the sportsbook operator tumbled 12.32%. A Halloween close of $30.59 took the stock to its lowest end-of-day price since August 2024.

A look at what ailed DraftKings and other sports-wagering equities last month could help explain the drop. It seems investors saw soaring volume on prediction markets, such as Kalshi, and they didn't like the taste. Market participants interpreted news of sports event derivative contracts as competitive threats to the offerings of DraftKings and friends, punishing the stocks in the process.

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While prediction markets grabbed the headlines, the real third-quarter headwind to DraftKings' margins and profitability ratios is another string of favorable NFL outcomes for bettors. That is to say, the house doesn't always win, and in September -- the most important month of the third quarter for sportsbooks -- DraftKings took some lumps, compelling some analysts to lower quarterly estimates.

Looking to the earnings report for help

The bad news, particularly the struggles over the first month of the NFL season, is arguably baked into DraftKings shares at this point. So it's possible the company's third-quarter earnings update (scheduled for release Thursday) could act as the foundation for a rebound. It's possible, but not promised.

Investors who are familiar with DraftKings know the gaming company has a knack for raising guidance. It has done so multiple times since its April 2020 initial public offering (IPO), and while that's a positive precedent, the operator has also revised forecasts downward due to client-friendly NFL outcomes.

So it's safe to say there's some burden on DraftKings and other sports betting-heavy internet-wagering companies to show investors that the current quarter will be better than the prior one on the football betting front. Some analysts recently acknowledged that if DraftKings' fourth-quarter hold -- the percentage of money retained by a sportsbook after winning bets are paid -- disappoints, it could compel those on the sell side to lower 2026 estimates.

How DraftKings can avoid post-earnings disappointment

There is still some hope out there for DraftKings and its shareholders. For example, the company could tell the investment community that bettors did worse on their football wagering in October. Related to sports betting, DraftKings could share that it expects to be relatively conservative in terms of promotional spending when online sports wagering launches in Missouri next month.

The gaming company could deliver impressive iGaming results/guidance, which could defray some of the emphasis on sports betting hold. There's also the matter of the recently announced acquisition of Railbird, which is serving as the buyer's pathway to prediction markets. Constructive commentary on that subject could allay concerns that DraftKings is too far behind the event contracts eight-ball.

Any or all of those scenarios could materialize following the earnings report. Investors won't know until Thursday, but DraftKings needs to give investors something to cheer about other than NFL underdogs and unders hitting (bettors typically lean into favorites and overs).

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.