Analysts Trim DraftKings Targets As Prediction Markets Weigh
Truist and Bank of America see stronger-than-expected sports betting trends ahead of Q3 results, but both flag heavier prediction-market spending denting DraftKings' bottom line.
Analysts at Truist and Bank of America have revised their expectations for DraftKings and Flutter Entertainment, FanDuel's parent company, ahead of third-quarter earnings reports due in the coming weeks.
Truist's Barry Jonas and Bank of America's Julie Hoover both told clients that underlying sports betting trends are running ahead of earlier expectations for the quarter, according to Legal Sports Report. One of the analysts described hold as "better than feared."
Spending tied to prediction markets remains the bigger swing factor for both firms, with Jonas and Hoover flagging it as a continuing drag on near-term profitability.
Jonas cut his price target on DraftKings to $26 from $29 and lowered his Flutter target to $100 from $120, while keeping buy ratings on both stocks. Hoover left her targets unchanged, at $115 on Flutter, where she remains neutral, and $27 on DraftKings, which she recently upgraded to buy.
Flutter is scheduled to report third-quarter results on 4 November. DraftKings has not confirmed a date, though it typically reports in early November.
Both analysts expect DraftKings to post a wider-than-anticipated adjusted EBITDA loss for the quarter because of higher spending on prediction markets this year. Hoover forecasts a $100 million adjusted EBITDA loss for the third quarter but has held her full-year estimate at $500 million.
Jonas now expects a $67 million adjusted EBITDA loss for the quarter, up from a previously forecast $41 million loss. He has also cut his full-year adjusted EBITDA estimate for DraftKings to $598 million from $686 million, though he said the revisions should still sit within Wall Street's broader expectations.
On FanDuel, Hoover expects the business to beat third-quarter expectations even as Flutter's international operations are likely to fall short. She attributed improving FanDuel trends partly to the heavier promotional spending Flutter signalled at its second-quarter call, alongside a potential boost from market making in both the third and fourth quarters.
Hoover raised her full-year adjusted EBITDA forecast for FanDuel to $625 million from $585 million. Jonas, meanwhile, kept his third-quarter adjusted EBITDA estimate for Flutter's US business at $5 million.
Legal Sports Report noted that both analyst notes were finalised before Flutter disclosed a restructuring of its UK and Ireland business in response to higher UK gaming taxes, meaning neither forecast yet accounts for that development.