DraftKings inventory falls 7% after Hindenburg Analysis uncovered a brief place

Shares in sports betting firm DraftKings fell Tuesday after Hindenburg Research announced it had taken a short position on the stock.

The stock, which has been one of the best performing on Wall Street since it went public through a special purpose vehicle merger last year, lost more than 7% in early trading.

In the report, Hindenburg compares the evaluation of DraftKings with that of competing companies and questions the company’s advertising spending and its future potential in the highly competitive sports gaming landscape.

The report also claims that SBTech, a European tech company that merged with DraftKings as part of the SPAC deal, is generating significant revenues from questionable gambling practices in overseas markets, particularly some Asian markets.

DraftKings did not immediately respond to a request for comment.

Hindenburg is a relatively new short-selling company that has made several high profile calls against SPACs over the past year.

The company took short positions on startups Nikola and Lordstown Motors, which were involved in clean energy vehicles, which have suffered from executive turnover and falling stock prices since Hindenburg’s reports.

Hindenburg also published a negative report against Clover Health in February but made no statement. The stock fell in the months following that move, but rebounded in early June due to increased interest from retailers in Reddit.

DraftKings and Diamond Eagle Acquisition Corp. first announced their merger agreement in December 2019 and completed the merger in April 2020. At the close of trading on Monday, the stock had risen more than 150% since the deal closed and about 400% since the deal closed.

Sports betting companies have seen a boom since the Supreme Court paved the way for widespread legalization in 2018. Stocks received an extra boost during the pandemic as some states appeared to be accelerating their rollouts of sports and online gambling to prop up budgets amid the recession caused by the pandemic.

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