Why DraftKings Stock Dropped Today

What happened 

Shares of DraftKings (NASDAQ: DKNG) fell 6.1% on Wednesday after the sports betting company announced the pricing of its public offering.  

So what

A total of 32 million DraftKings shares will be sold, with the company selling 16 million and shareholders selling the rest. The offering is priced at $52 per share and is expected to raise more than $1.6 billion. Underwriters also have the option to purchase as many as 4.8 million additional shares in the next 30 days.

A stock chart that rises sharply then falls.

DraftKings’ stock fell after pricing its share sale. Image source: Getty Images.

DraftKings is projected to raise more than $830 million from the shares it sells. The company plans to use the funds for general corporate purposes.

Now what 

It makes sense that DraftKings is using the recent run-up in its share price to raise cash by selling stock. The fantasy sports and betting operator is ramping up its sales and marketing investments now that live sports have resumed following coronavirus-related stoppages. DraftKings said in its registration statement for the offering that it plans to spend as much as $210 million in the third quarter alone. 

However, the price of the offering was 8% lower than the stock’s closing price on Tuesday, and shares fell in kind. Moreover, several major shareholders — including New England Patriots owner Robert Kraft — are taking part in the share sale. When insiders sell, investors tend to take note.

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Joe Tenebruso 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.

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