DraftKings Stock Price Target Gets Prediction Market Lift at Deutsche Bank

Albeit in incremental fashion, DraftKings (NASDAQ: DKNG) stock can generate some upside from current levels when factoring in strength in its DraftKings Predictions business.

In a July 9 note to clients, Deutsche Bank analyst Steven Pizzella nudged his price target on the gaming stock to $28 from $26 while reiterating a “hold” rating. Citing revenue lethargy in the operator’s iGaming and online sports betting (OSB) businesses, the analyst expects DrafKings will report second-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) of $140 million, below the bank’s prior estimate of $246 million and the Wall Street consensus of $198 million.

His iGaming revenue forecast for DraftKings in the June quarter is $446 million, below the consensus of $469 million. The company is scheduled to deliver second-quarter results on Aug. 5.

Prediction Markets Could Boost DraftKings Stock

DraftKings stock has scuffled of late, but that may be a case of markets overlooking benefits accruing to the DraftKings Predictions business by way of the World Cup and other signs of prediction market progress. For example, the company recently rolled out its DKeX exchange, giving it greater control over the economics of its event contracts unit.

Pizzella acknowledged that his prior view on DraftKings’ prediction market venture was largely focused on the company’s $200 million to $300 million in expected 2026 spending, but he’s “amended” that framework to account for potential upside from that business. The analyst says it’s “more art than science” at this point, but prediction market take rate could prove instructive in valuing that unit’s contributions to possible upside for DraftKings shares.

In prediction markets, DraftKings faces stiff competition from entrenched incumbents such as Kalshi and Polymarket. However, some sell-side analysts view DraftKings as ready for the fight because its sports trading expertise has carryover value in prediction market trading and market making. Pizzella notes his price target on the gaming stock implies it “can trade at a 6.3% free cash flow yield on our free cash flow per share forecast for 2027.”

Explaining the Handle Problem

State-level data indicate that DraftKings’ sports betting handle slipped 2% year-over-year in May. That could be attributable to a variety of factors, including the competitive effects of prediction markets, potentially signaling it’s prudent for DraftKings to assert itself in that space.

Pizzella says other factors behind handle weakness include bettors’ increased proclivity for parlays, which result in lower bet sizes, and some sports, such as college basketball, being more conducive to prediction market usage.

Still, some well-known investors see value in DraftKings, noting the stock could benefit if the likes of Kalshi and Polymarket are pinched on the legal and regulatory fronts.