DraftKings Stock Price Target Gets Prediction Market Lift at Deutsche Bank
Due to the expansion of its new DraftKings Predictions business, DraftKings (NASDAQ: DKNG) stock is expected to rise steadily and incrementally from current levels.
Deutsche Bank analyst Steven Pizzella reiterated a "hold" recommendation while raising his price objective on the casino operators' stock from $26 to $28 in a letter to clients dated July 9.
The analyst projects DraftKings to report second-quarter EBITDA of $140 million, significantly less than the bank's previous estimate of $246 million and the Wall Street consensus of $198 million, citing revenue sluggishness in the operator's iGaming and online sports betting (OSB) segments.
“The revision is primarily driven by lower OSB and iCasino revenue expectations plus increased marketing expenses,” notes Pizzella. “We reduce OSB net revenue to $884 million from $968 million, reflecting a lower hold assumption (10.5% vs. 11.0% previously) and higher promotional spend.”
His estimate of DraftKings' iGaming revenue for the June quarter is $446 million, which is less than the $469 million average. On August 5, the corporation is expected to present its second-quarter results.
Forecast Markets May Increase DraftKings' Stock
The market may be ignoring a potential boost to DraftKings' Predictions business from the impending World Cup and broader momentum in event-contract trading, even if the company's stock has recently struggled.
For instance, the company has more control over the economics of its event contracts unit thanks to the recent launch of its DKeX exchange.
Pizzella admitted that his earlier assessment of DraftKings' prediction market endeavor was mostly centered on the company's anticipated $200 million to $300 million in spending in 2026, but he has "amended" that framework to take future profits from that operation into consideration.
Although the analyst claims that it is now "more art than science," forecasting the market take rate may be useful in determining how much that unit contributes to potential upside for DraftKings shares.
“Apply take-rate assumptions to estimate net revenue, ranging from 3.0% in the bear case to 6.0% in the bull case, below DKNG’s 2025 OSB net win margin of 7.1%,” says Pizzella. “We believe this discount is appropriate given prediction markets are more exchange-like than sportsbook-like, with greater price transparency, tighter bid/ask spreads, lower structural hold, and potentially higher user price sensitivity. In addition, to hit the high end, it is dependent on getting scale for the market making business, in our view.”
DraftKings is up against fierce competition in prediction markets from well-established players like Kalshi and Polymarket. Nonetheless, some sell-side analysts believe DraftKings is prepared for the battle since its knowledge of sports trading has applications in market making and prediction market trading.
The gaming stock "can trade at a 6.3% free cash flow yield on our free cash flow per share forecast for 2027," according to Pizzella's price target.
Describe the Handle Issue
According to state-level data, DraftKings' sports betting handle decreased by 2% in May compared to the previous year. That could be due to a number of things, such as the competitive impact of prediction markets, which might indicate that it would be wise for DraftKings to make an impression there.
Other causes of handling weakness, according to Pizzella, include bettors' greater inclination for parlays, which lead to smaller wagers, and some sports, such college basketball, being more favorable to the use of prediction markets.
However, other prominent investors believe DraftKings has value, pointing out that the company might gain if companies like Kalshi and Polymarket face legal and regulatory challenges.
