Last Update 14 Dec 25

Fair value Decreased 27%

DKNG: Prediction Market Expansion Will Pressure Margins And Future Earnings Power

Analysts have trimmed their fair value estimate for DraftKings to $30.00 from about $40.89 as they moderate expectations for revenue growth, profitability, and future valuation multiples in light of increased competition from prediction markets, recent hold volatility, and more cautious near term earnings outlooks, despite a still constructive long term industry backdrop.

Analyst Commentary

Recent Street research reflects a clear reset in expectations for DraftKings as multiple firms trim price targets and, in some cases, ratings. While the long term narrative around online sports betting and iGaming remains constructive, near term headwinds linked to prediction markets, hold volatility, and elevated promotional intensity are prompting more conservative assumptions for both growth and profitability.

Across the coverage universe, the center of gravity for price targets has shifted lower, with several cuts clustering in the $40 to $50 range and a handful now below the current share price. This repricing signals reduced confidence in DraftKings' ability to sustain prior revenue trajectories and margin expansion targets, especially as investors wait for clearer evidence that newer initiatives, such as DraftKings Predictions, can offset emerging competitive threats.

Rating actions also underscore a more balanced risk reward profile. Some former bulls have moved to the sidelines as they reassess the durability of DraftKings' competitive moat against fast growing prediction markets and as they evaluate the regulatory and tax backdrop. Others remain positive on the long term opportunity but emphasize that estimates and sentiment may still need to reset lower before the stock can regain durable support.

At the same time, there are high profile voices highlighting potential upside if DraftKings executes successfully on its prediction market strategy, wins incremental legalization, and normalizes recent hold and promotional headwinds. JPMorgan, for example, argues that current valuation already embeds substantial fear and does not fully credit the possibility of favorable execution on these strategic initiatives.

Overall, the tone of recent commentary is one of cautious optimism, with a tilt toward risk management rather than aggressive growth assumptions. Investors are being encouraged to distinguish between shorter term earnings pressure and the long term structural growth of the category, while also recognizing that competitive dynamics and regulatory outcomes could materially influence the ultimate trajectory.

Bearish Takeaways

Bearish analysts have systematically lowered price targets into the low to mid $40s and, in some cases, the low $30s. This signals a view that prior multiples and growth forecasts were too ambitious given the current operating backdrop.
Several downgrades to neutral or hold suggest rising concern that prediction markets could erode DraftKings' share of wallet and pricing power. This could pressure long term revenue growth and potentially force higher marketing and promotional spend to defend market share.
Estimate cuts tied to unfavorable hold outcomes and elevated promotions highlight execution risk around monetization and margin delivery, with some research pointing to nine figure quarterly headwinds that delay the pathway to the company’s targeted profitability levels.
A minority of the Street now sees the stock as vulnerable to further downside if competitive intensity, regulatory uncertainty around prediction products, and potential tax changes persist. These analysts argue that these factors collectively warrant a lower valuation multiple until visibility improves.

What's in the News

A federal judge reversed a prior legal win for prediction market Kalshi, lifting an injunction and reinforcing states' authority to treat its sports contracts as gambling. The ruling sent DraftKings shares up about 7% as investors reassessed the competitive threat from prediction markets (iGaming Business).
Online prediction market Polymarket is preparing a limited return to the U.S. with a focus on sports betting, aiming to capture volume during peak football and basketball season and intensifying competitive pressure on traditional sportsbooks including DraftKings (Bloomberg).
Cboe Global plans to launch a federally regulated prediction market platform in the coming months, initially excluding sports but underscoring how large, well capitalized exchanges are moving into event contracts adjacent to online gambling (Bloomberg).
Kalshi is raising more than $300 million at a $5 billion valuation and expanding access to customers in over 140 countries, highlighting rapid growth in prediction market volume that has weighed on DraftKings and other online sports betting stocks (New York Times).
Cathie Wood's ARK Investment purchased approximately 98,000 additional shares of DraftKings, indicating ongoing institutional interest amid concerns about prediction market disruption and near term earnings volatility.

Valuation Changes

Fair Value Estimate has fallen significantly, from approximately $40.89 to $30.00 per share. This reflects a more conservative outlook on growth and profitability.
Discount Rate has edged down slightly, from about 8.60 percent to 8.57 percent, implying only a minimal change in perceived risk.
Revenue Growth has been trimmed modestly, from around 17.47 percent to 16.58 percent, signaling slightly lower expectations for top line expansion.
Net Profit Margin has been reduced meaningfully, from roughly 12.26 percent to 9.42 percent, indicating a more cautious view on long term earnings leverage.
Future P/E multiple has decreased slightly, from about 25.5x to 24.6x, capturing a small reset in valuation assumptions relative to earnings.

Regulatory pressures and social concerns are tightening, threatening margins, growth potential, and the size of DraftKings' addressable market.
Slowing market expansion, rising competition, and reliance on promotions challenge profitability, revenue growth, and business diversification outside traditional sports betting.
Expanding legalized markets, tech-driven efficiencies, and product diversification position DraftKings for sustained growth, margin improvement, and greater earnings stability.

Catalysts

About DraftKings

Operates as a digital sports entertainment and gaming company in the United States and internationally.What are the underlying business or industry changes driving this perspective?

Persistent and escalating regulatory scrutiny on gambling and sports betting is expected to lead to higher tax rates, stricter advertising limits, and increased compliance costs across key jurisdictions. Recent and anticipated hikes in state taxes, such as those in New Jersey, Louisiana and Illinois, are already being incorporated into guidance and are likely to further compress net margins and constrain future EBITDA growth.
Heightened consumer and political concern over problem gambling and addiction may trigger additional restrictions, social pushback, or outright bans on certain betting products, particularly micro betting and prediction markets. Such regulatory responses threaten to cap new customer growth, shrink the long-term addressable market, and limit revenue expansion potential.
Intensifying competition from both entrenched rivals like FanDuel and BetMGM, as well as vertically integrated casino and media companies, will likely force DraftKings to increase promotional spending and customer acquisition costs to defend or grow market share. This undermines prospects for sustainable net margin expansion and could reverse recent gains in marketing efficiency, impacting long-term profitability.
The long-term growth potential from state-by-state legalization is losing momentum, with fewer new large states opening up and some populous states likely to resist expansion due to political or social concerns. This will result in slower top-line growth and increasing reliance on a saturated and maturing U.S. market, limiting the company's ability to drive consistent revenue and earnings growth.
Persistent reliance on promotional offers and structural industry headwinds-exacerbated by the risk of rising inflation and weaker discretionary spending-are expected to pressure revenue per customer and stall increases in total handle. The inability to diversify revenue meaningfully outside traditional sports betting or to successfully penetrate new verticals heightens the risk of stagnating revenues and inability to generate positive free cash flow over the long term.

DraftKings Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

This narrative explores a more pessimistic perspective on DraftKings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
The bearish analysts are assuming DraftKings's revenue will grow by 17.5% annually over the next 3 years.
The bearish analysts assume that profit margins will increase from -5.6% today to 12.3% in 3 years time.
The bearish analysts expect earnings to reach $1.1 billion (and earnings per share of $2.2) by about September 2028, up from $-304.5 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 25.5x on those 2028 earnings, up from -74.4x today. This future PE is greater than the current PE for the US Hospitality industry at 23.9x.
Analysts expect the number of shares outstanding to grow by 1.81% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.6%, as per the Simply Wall St company report.

DraftKings Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

DraftKings continues to benefit from long-term secular trends such as the ongoing legalization and social acceptance of online sports betting and iGaming, which fuels expanding addressable markets and supports multi-year revenue growth.
The company is achieving operational scale, improving technology infrastructure, and activating AI-driven efficiency initiatives, collectively contributing to sustainable margin expansion and the potential for consistent positive net income and EBITDA in the coming years.
DraftKings is executing on customer engagement strategies like industry-leading live betting and hyper-personalization, driving higher user retention, longer customer lifetimes, and increasing average revenue per user, all of which support stronger revenue growth and margin improvement.
New vertical expansions, such as enhancements in iGaming and exploration of prediction markets, along with potential partnerships in sports media, diversify and grow DraftKings' revenue streams, lessening the impact of cyclicality and bolstering long-term earnings stability.
DraftKings is actively optimizing its cost structure through renegotiation of legacy market access and data rights agreements, leveraging scale for better terms, and reaping operational efficiencies that are likely to improve net margins and accelerate free cash flow generation over the long term.

Valuation

How have all the factors above been brought together to estimate a fair value?

The assumed bearish price target for DraftKings is $40.89, which represents two standard deviations below the consensus price target of $54.86. This valuation is based on what can be assumed as the expectations of DraftKings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $78.0, and the most bearish reporting a price target of just $39.5.
In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $8.8 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 25.5x, assuming you use a discount rate of 8.6%.
Given the current share price of $45.65, the bearish analyst price target of $40.89 is 11.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystLowTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystLowTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystLowTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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