DraftKings (NASDAQ: DKNG) experienced a notable decline over the week, dropping nearly 7% despite a positive closure on Friday, largely attributed to cautious remarks from Morgan Stanley analyst Stephen Grambling.
In a comprehensive report released on Wednesday addressing the gaming industry, Grambling adjusted his price target for DraftKings from $39 to $36. This marks the second revision since May, influenced by the company’s outlined spending strategy for its prediction market initiatives. As a result, his forecast for DraftKings’ second-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) has been decreased from $175 million to $150 million. Additionally, he anticipates a downward adjustment in the gaming company’s full-year EBITDA guidance, now projected between $700 million and $800 million, down from earlier expectations of $700 million to $900 million.
“Our estimated ~$150 million EBITDA for Q2 suggests a slight shortfall compared to consensus expectations of ~$175 million, primarily due to heightened customer acquisition costs in the prediction market and a decrease in gross hold following the June World Cup, with management likely to refine its full-year EBITDA guidance to $700 million-$800 million,” noted Grambling.
DraftKings, headquartered in Boston, is slated to announce its results for the June quarter on August 6.
DraftKings’ Investment in Prediction Markets
DraftKings has disclosed plans to allocate up to $300 million this year to expedite the growth of its DraftKings Predictions platform.
While this investment may exert pressure on second-quarter outcomes, it could represent an opportunity for long-term benefits. Recently, the gaming company has reported significant growth in volume on the DraftKings Predictions platform. Additionally, it unveiled its DKeX exchange last month, enhancing its economic control over prediction market operations.
Given their strong brand presence and trading capabilities, DraftKings and Flutter Entertainment’s (NYSE: FLUT) FanDuel may pose serious competitive challenges to standalone prediction market operators, especially in regions where sports betting remains prohibited.
Moreover, some experts in the industry believe that DraftKings and Flutter might gain an advantage if courts eventually eliminate prediction markets in favor of sports derivatives. In this scenario, both companies could shift back to traditional sports betting, alleviating competition from prediction markets.
Challenges Ahead in NFL Season
The 2026 NFL season is set to commence on Wednesday, September 9, and as noted by Grambling, this upcoming season represents a crucial assessment point for the sports wagering industry. Companies such as DraftKings and Flutter must demonstrate to investors that they can either mitigate the impact of prediction market competition or capture market share from established players in states like California and Texas.
“The NFL launch in September will be critical in evaluating both the existing market intrusion by new prediction market entrants and the capability of DKNG/FLUT to expand their share in non-offshore sports betting markets,” Grambling concluded.