Prediction markets remain the dominant issue hanging over U.S. sports betting and online gaming stocks heading into fourth-quarter earnings, even as underlying operating trends appear more stable than recent share prices suggest.
In its Q4 earnings preview, Stifel said investor concerns around prediction market cannibalization have continued weighing on valuations across the sector in 2026 despite what the firm described as relatively healthy sports betting and online casino fundamentals.
“Key CY25 narrative overhangs have continued into CY26,” Stifel wrote, noting that pure-play online sportsbook and iCasino operators are down roughly 22% to 28% year to date.
Prediction markets the main overhang
Stifel said concerns around prediction markets have become embedded in how investors are valuing U.S. sportsbook operators, but emphasized that the impact so far appears more theoretical than visible in state-level data. While the firm acknowledged that decelerating handle growth in New York and other early-launch states has intensified those fears, it said the slowdown is more closely tied to calendar effects and a maturing U.S. market than direct share loss to prediction platforms.
At DraftKings, Stifel pointed to disciplined investment and improving hold as evidence the core business remains intact. The firm expects DraftKings to deliver roughly $80 million to $90 million of implied upside to fourth-quarter adjusted EBITDA, supported by favorable outcomes late in the quarter and stable promotional intensity.
For FanDuel parent Flutter Entertainment, Stifel lowered near-term estimates due to continued handle share pressure in the U.S., but said longer-term upside remains intact as promotional spending moderates and international markets such as the UK and Brazil stabilize.
Stifel also highlighted that online casino continues to act as a margin stabilizer across the sector, offsetting sportsbook volatility and supporting cash flow as operators prioritize profitability over share gains.
Q4 fundamentals better than feared
Stifel said Q4 sportsbook results benefited from more favorable outcomes late in the year after a volatile October, with November and December largely tracking in line with historical expectations. That dynamic helped stabilize hold across the industry despite continued moderation in handle growth.
The firm estimates that roughly 68% of fourth-quarter sportsbook handle occurred in November and December, amplifying the impact of late-quarter results on earnings. For DraftKings, Stifel estimates structural hold of roughly 12% for the quarter, supporting its view that recent stock weakness has outpaced any underlying deterioration in fundamentals.
Promotional spending remained elevated but stable across operators, according to Stifel, with FanDuel’s U.S. investment running roughly flat year over year as a percentage of handle and DraftKings maintaining disciplined customer acquisition.
Stifel expects promotional intensity to moderate further in 2026 as operators prioritize margin expansion and cash flow.
What to watch on earnings calls
Stifel downgraded Codere Online to hold ahead of Mexico’s new gaming tax, citing uncertainty around how much of the levy operators will be able to offset through pricing and cost controls. While the firm views Codere as strategically well positioned in Latin America, it said the tax impact introduces near-term earnings risk that is not yet fully reflected in consensus estimates.
Looking ahead, Stifel said upcoming earnings calls are likely to focus on management commentary around prediction markets, particularly whether operators see any measurable impact on sportsbook engagement or customer acquisition.
Investors are also expected to listen for signals around structural hold sustainability, promotional discipline, and the contribution of online casino to overall profitability.
