Deutsche Bank Raises DraftKings Price Target to $28

After adding and considering prediction markets, Deutsche Bank's Steven Pizzella raised his target price for DraftKings to $28. 

This was a raise from his previous price target of $26, as relayed in a July 9 note Pizzella sent to clients. He also gave it a "hold" rating. Pizzella mentioned that he expected DraftKings' second-quarter earnings before interest, taxes, and depreciation/amortization (EBITDA) of $140 million, which is below Deutsche's estimate of $246 million and the Wall Street consensus of $198 million. 

The second-quarter expectations were lowered as Pizzella cited weaker online sports betting and iGaming revenue and reduced his online sports betting revenue forecast to $884 million (previously $968 million) due to lower expected sportsbook hold and increased promotional spending. 

Pizzella is forecasting iGaming revenue of $446 million for the June quarter, which is also below the consensus of $469 million. The second-quarter results will be announced on August 5. 

Additionally, the adjusted EBITDA for the year is forecast at $716 million, about $20 million lower than the previous estimate. 

Prediction Markets Added to Valuation Model

Pizzella's model now includes DraftKings' launch in Alberta, Canada, this coming week, and Maine for January. While DraftKings hasn't officially partnered with a casino in the state for online casino play, Caesars has partnered with the same tribes it has for sports betting. Also, DraftKings recently launched its DKeX exchange. It faces stiff competition from platforms like Kalshi and Polymarket, but it has a built-in user base.

Regulatory Risks Remain a Concern

Another factor that impacts Pizzella and gives it a "hold" rating is the potential for legislative and regulatory changes, such as additional tax increases or restrictions on certain markets. For example, North Carolina recently added a tax to prediction markets and increased the sports betting tax rate from 18% to 23%.