It closed higher on Friday, but DraftKings (NASDAQ: DKNG) endured a rough week, shedding nearly 7% due in part to some tepid commentary from Morgan Stanley analyst Stephen Grambling.
In a wide-ranging Wednesday report on the broader gaming sector, Grambling lowered his price target on DraftKings to $36 from $39, marking the second time since May the analyst cut his price forecast on the stock. Citing the operator’s previously disclosed spending plans for its prediction market efforts, the analyst reduced his second-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) forecast on DraftKings to $150 million from $175 million. He also expects the gaming company to trim its full-year EBITDA guidance to $700 million to $800 million from prior guidance of $700 million to $900 million.
“Our revised ~$150 million EBITDA in Q2 would equate to a slight miss vs. consensus at ~$175 million largely due to increased prediction market customer acquisition and slightly weaker gross hold in the June World Cup results, and we expect management to narrow its full-year EBITDA guidance to $700 million-$800 million,” wrote Grambling.
Boston-based DraftKings is scheduled to deliver results for the June quarter on Aug. 6.
DraftKings Prediction Market Spending Well-Known
DraftKings previously told the investment community it will spend up to $300 million this year to accelerate the DraftKings Predictions platform.
That spending may be a drag on second-quarter results, but it could be a case of short-term pain, long-term gain. In recent months, the gaming company highlighted rapidly growing volume on DraftKings Predictions and last month, it announced the launch of its DKeX exchange, which grants it greater economic control of its prediction market efforts.
Due to their combination of brand recognition and trading expertise, DraftKings and Flutter Entertainment’s (NYSE: FLUT) FanDuel could be legitimate competitive threats to pure-play prediction market operators, particularly in states where sports betting isn’t legal.
Likewise, some industry observers believe that DraftKings and Flutter will benefit if courts eventually strip prediction markets of sports derivatives. In that hypothetical scenario, the two gaming companies simply revert back to focusing on standard sports betting while being rid of the competition of prediction markets.
NFL Season Brings Tests
The 2026 NFL season kicks off on Wednesday, Sept. 9 and as Grambling puts it, the upcoming campaign is a test for the sports wagering sector. Companies such as DraftKings and Flutter need to show investors they can either ward off the prediction markets threat or take share from incumbents in states such as California and Texas.
“The rubber meets the road into NFL launch in September to assess both existing market encroachment from new PM entrants and the power of DKNG/FLUT to take share in non-OSB markets,” adds Grambling.
