DraftKings was targeted by short sellers but is supported by Reddit discussion
DraftKings stock fell after a leading short selling firm said it uncovered potential legal issues at the ambitious sports betting company.
DraftKings is a pure-play online gambling stock
However, the stock price of DraftKings recovered during the day, as the company denied the allegations and traders who frequent the Reddit online stock trading group WallStreetBets discussed buy-in.
DraftKings nearly tripled since went public
Hindenburg Research, an investment firm that bets against companies by shorting their stock, sparked the sell-off with its report. Hindenburg alleged, among other things, that DraftKings’ European subsidiary, SBTech, was providing online gambling software in countries where such betting is not allowed.
Hindenburg noted that while DraftKings lost $844 million in 2020, its stock market value of $21 billion exceeded the combined value of four top competitors, FanDuel, Wynn Interactive, Super Group, and Kambi.
”We think the company is standing on several landmines that will inhibit its ability to fulfill the market’s lofty expectations,” Hindenburg wrote.
According to statement from DraftKings, “This report is written by someone who is short on DraftKings with an incentive to drive down the share price… Our business combination with SBTech was completed in 2020. We conducted a thorough review of their business practices, and we were comfortable with the findings. We do not comment on speculation or allegations made by former SBTech employees.”
DKNG reminded people of Donkey Kong
Before Hindenburg’s broadside, DraftKings stock had nearly tripled since the firm went public in April last year. As part of the SPAC deal, DraftKings also merged with SBTech, a Bulgarian company that developed the technology behind online gambling sites.
Hindenburg is among a new class of short selling firms that have emerged in the past few years as a counter to rising hype and speculation in some sectors of the stock market, particularly around SPAC.
The Reddit discussion section known as WallStreetBets has taken up the cause of stocks targeted by short sellers and helped drive their prices up, most famously in the cases of retailer GameStop and movie chain AMC.
On Tuesday, the most popular comments on Reddit about DraftKings suggested buying the stock because the company’s ticker symbol, DKNG, reminded people of the video game Donkey Kong.
Editing by Rachel Hu
