Despite opening more than 10% lower today, retail investors in DraftKings (NASDAQ:DKNG) are pulling behind the company, paring some of these early morning gains. Currently, shares of DKNG stock are down “only” 4% amid retail investor support.
Indeed, DraftKings is a stock that has generated a tremendous amount of investor interest of late. Mentions on various social media sites are skyrocketing today. And for good reason.
Today’s volatility has to do with a high-profile short report released by Hindenburg Research this morning. This short report alleges some pretty nefarious activity at DraftKings, and has caused otherwise incredible volatility in this stock. At the time of writing, nearly five times the average daily volume of shares has already traded hands. Indeed, the market appears to be digesting this information presently, and more volatility may be on the horizon as a result.
Accordingly, let’s dive into what was reported, and why this stock is a highly volatile one today.
Short Report Pours Cold Water on DKNG Stock
The title of Hindenburg’s short report, “DraftKings: A $21 Billion SPAC Betting It Can Hide Its Black Market Operations,” speaks volumes.
Indeed, Hindenburg points to a three-way SPAC deal involving Diamond Acquisition and SBTech as the key issue at play. Approximately half of SBTech’s revenues, according to the report, were generated via black-market means. Hindenburg ties SBTech to involvement with “plenty of mobs” and black market actors. Whether this is a PR stunt by a short-seller looking to profit from negative publicity, or grounded, factual accusations, remains to be seen.
Accordingly, it’s no surprise that the Reddit universe has blown up over these allegations. Many retail investors have backed the idea that these allegations are simply “fake news.” Others have (perhaps not so politely) suggested short-sellers are messing with their personal casino — the stock market.
Regardless, these allegations appear to have spooked the market, at least at open. The question many investors have right now is how seriously to take these allegations.
Fellow InvestorPlace writer William White suggests perhaps these concerns are overblown. He wrote, “While there are concerns about the report, some analysts aren’t seeing it as a major blow. Credit Suisse analyst Benjamin Chaiken believes that even if SBTech’s revenue weren’t there to add to DraftKings’ own, the company would be fine. He says the acquisition of SBTech had more to do with its platform than its revenue stream.”
Time will tell how this all plays out for DKNG stock. For now, it’s clear the consensus is more volatility is likely on the horizon.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.