DKNG: Expanding Into New States Will Mitigate Rising Prediction Market Threats

DraftKings' average analyst price target has been lowered by approximately $1.24 to $44.81, as analysts cite continued hold volatility, increased promotional spending, and heightened competition from prediction markets as primary factors behind the revisions.

Analyst Commentary

Recent analyst coverage for DraftKings presented a wide range of perspectives on the company's outlook, reflecting both confidence in its growth prospects and caution regarding emerging challenges.

• Bullish analysts remain constructive on the long-term growth opportunity in domestic online sports betting, citing accelerated handle growth and the potential for iCasino legalization in more states.
• Despite headwinds, several analysts believe recent share price declines present a more attractive entry point. They view the muted growth outlook as already reflected in the stock’s valuation.
• Positive sentiment is supported by DraftKings' proactive approach in the prediction markets space. The launch of DraftKings Predictions and expansion into non-regulated states are viewed as positioning the company for future regulatory changes.
• Some analysts believe unfavorable recent sports outcomes and increased promotional spending are temporary setbacks. They view longer-term earnings power as remaining intact.

• Bearish analysts highlight persistent hold volatility and higher promotional costs as factors that could pressure near-term margins and earnings estimates.
• The rise of well-capitalized competitors in the prediction market space, along with the growing popularity of exchanges offering more favorable odds, is seen as an increasing risk to DraftKings' core sportsbook business.
• Expectations for continued regulatory uncertainty around prediction markets create further risk. This has led some to move to the sidelines until there is more clarity from state regulators.
• Downgrades and lowered price targets reflect a cautious stance on the timing of a potential turnaround as the company navigates industry headwinds and adjusts its long-term guidance.

What's in the News

• A federal judge reversed a prior legal victory for rival prediction-market operator Kalshi by lifting an injunction that had protected it from Nevada regulators. Shares of DraftKings rose 7% following the decision (iGaming Business).
• Cboe Global announced plans to launch a prediction markets platform in the coming months, and explicitly excluded sports betting products as it enters this growing sector (Bloomberg).
• Polymarket is preparing for a return to the U.S. market with an initial focus on sports betting. This move could increase competition for DraftKings during the busy football and basketball seasons (Bloomberg).
• Kalshi is reportedly raising over $300 million at a $5 billion valuation, which may increase competitive pressure on traditional sportsbooks such as DraftKings (New York Times).
• DraftKings informed customers of a recent credential stuffing attack and stated that no sensitive identification or financial account information was compromised (BleepingComputer).

Valuation Changes

• Fair Value Estimate has declined modestly from $46.05 to $44.81.
• Discount Rate decreased slightly from 8.55% to 8.51%.
• Revenue Growth projection edged down from 21.80% to 21.49%.
• Net Profit Margin forecast fell marginally from 10.67% to 10.62%.
• Future P/E Ratio estimate decreased from 29.61x to 28.70x.